House was paid off. Then mortgage was taken out for $300,000 5 years ago. Sold house for $410,000 in 2016. I shouldn't have to pay capital gains since profit is $110,000?

[Anonymous]

My mother paid off her house after my father passed away.  7 years ago she took on a new mortgage of $300,000.  She sold her house in 2016 for $410,000.  She shouldn't have to pay capital gains tax since the profit is under $250,000 or is the profit different when she took out a new loan on the house?  She lived in the house more than 5 years and its located in California.

[Coleen3 · Accepted solution]

The mortgage has nothing to do with a gain or loss on property. You would compare the original purchase price plus improvements with the sales price to determine gain. If there is $250,000 gain or less using that formula, she does not have to include the gain, unless it was used as rental property at some point or she received a 1099-S.

[Anonymous]

My father passed away in 2000, so could we apply what is quoted below from the TTLC forum:


"Surviving spouse. If you are a surviving spouse and you owned your home jointly, your basis in the home will change. The new basis for the interest your spouse owned will be its fair market value on the date of death (or alternate valuation date). The basis in your interest will remain the same. Your new basis in the home is the total of these two amounts.  If you and your spouse owned the home either as tenants by the entirety or as joint tenants with right of survivorship, you will each be considered to have owned one-half of the home.

Example. Your jointly owned home (owned as joint tenants with right of survivorship) had an adjusted basis of $50,000 on the date of your spouse's death, and the fair market value on that date was $100,000. Your new basis in the home is $75,000 ($25,000 for one-half of the adjusted basis plus $50,000 for one-half of the fair market value)."


Does that mean if my parents bought the house in 1979 for $80,000, and when my father passed away in 2000 the fair market value of the house was $240,000, so the new total basis would be $160,000?  Do I put this amount in the software section: "Sale of Home (gain or loss) / Tell Us About the Purchase of Your Home / Adjusted Cost Basis" under the Wages and Income tab?  Thank you for your support.

[Coleen3]

That is correct as long as they were joint tenants with right of survivorship. If not, you would need to consult how state law handles it.

Qualified Joint Interest
Include one-half of the value of a qualified joint interest in the decedent's gross estate. It does not matter how much each spouse contributed to the purchase price. Also, it does not matter which spouse dies first.

A qualified joint interest is any interest in property held by married individuals as either of the following.

Tenants by the entirety, or

Joint tenants with right of survivorship if the married couple are the only joint tenants.

Basis.   As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. Decrease the cost by any deductions allowed to you for depreciation and depletion. Increase the reduced cost by your basis in the half you inherited. Pub 551

[Anonymous]

Thank you so much for your support, it has been very helpful.  I just need to verify one more thing, I forgot to mention that my mother lives in California so would this fall under Pub.555 - Community Property?  Here is an excerpt:


"Death of spouse.    If you own community property and your spouse dies, the total fair market value (FMV) of the community property, including the part that belongs to you, generally becomes the basis of the entire property. For this rule to apply, at least half the value of the community property interest must be includible in your spouse's gross estate, whether or not the estate must file a return (this rule does not apply to registered domestic partners).
Example.

Bob and Ann owned community property that had a basis of $80,000. When Bob died, his and Ann's community property had an FMV of $100,000. One-half of the FMV of their community interest was includible in Bob's estate. The basis of Ann's half of the property is $50,000 after Bob died (half of the $100,000 FMV). The basis of the other half to Bob's heirs is also $50,000."


Is the math still the same as RIGHT OF SURVIVORSHIP, half of the original basis added with half of the fair market value of the property at the time of the spouses death which in my mother's case is, original basis is $40,000 ($80,000 / 2) + $120,000 (FMV at time of death $240,000 / 2) = $160,000?  In the "Adjusted Cost Basis EasyGuide  --  Description of Increase box, do I put in "Death of Spouse"?  Thank you again for all your support, you have saved my mom thousands of dollars.