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12/02/2016

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RobertHaynes

My mother and I co owned a home after my father passed. Mother was ill with cancer and the home was transferred to my ownership in October of2015 valued at $173,000.oo lets say. Home was listed and sold in September of 2016 for about 179,00.00. What taxes and tax liability will I incur due to the home sale?

Steve Bailey

Robert, it’s impossible to answer this question without more info. Let me explain.

How you came to co-own your home with your mother is important because if you received ownership by inheritance from your dad, your tax basis in that half of the home is ½ the value of the home on his date of death. If you received it by gift, then your tax basis is the same tax basis as the person who gave it to you. If you purchased half the home, then your tax basis in the half is whatever you paid for the home.

Forgive me, but I am a recovering CPA so I like to work with numbers.

Assume your parents bought the home for $50,000 and that it was worth $110,000 when your dad passed and is worth $179,000 today and that selling costs will be $12,000.

If you received ½ of the home by inheritance from your dad and ½ from your mom in 2015.
Basis in half from dad $55,000
Basis in half from mom 25,000
Total tax basis $75,000

Sales price $179,000
Less sales cost ( 12,000) $167,000

Taxable Gain $ 88,000

If you received both halves of the home from your mom.
Basis in from mom 50,000

Sales price $179,000
Less sales cost ( 12,000) $167,000

Taxable Gain $ 117,000

If you have lived in the home as your personal residence for at least 2 out of the last 5 years and have not rented the property, or excluded the gain on the sale of another personal residence within 2 years of this sale, you may exclude all the gain, up to $250,000, from taxation. If you do not qualify for the personal residence exclusion, then you must pay capital gains tax. The rate of the tax varies depending on your other taxable income but is, for most people, 15% federal and 5% Alabama. So, in the above two examples, the taxes paid would be $17,600 and $23,400.

No need to cry over spilled milk if the sale is already finished but for future use you should know that there are strategies to use your mother’s capital gain exclusion on the sale even if you need to transfer the title out of her name for other reasons.

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