kzaccountingllc
Level 3
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I have a client whom he received a house from his elderly parent as a gift.  The date of transfer was on November 2018.  Then my client sold the house on June 2019 for 200k.  The original basis of the house is 30k when his elderly parent bought it in 1975.  So will the original basis be carried over to my client at 30k?  This mean my client will have 200k - 30k = 170k of capital gain?

I do understand that if my client's elderly parent sold my client the house, then the sale price will be the adjusted basis for my client.  But in this case it was transfer the title over to my client's name without any money being involved and I don't think using the FMV of the house on November 2018 as basis is accurate.  Could you please give me some thoughts on this?

Thank You

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BobKamman
Level 14
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Was it originally owned by both parents? You might get stepped-up basis on half (or all, in a community property state).  

kzaccountingllc
Level 3
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Thank you all for your useful reply and I really appreciate it.  I just talked to my client again and the house is owned jointly by my client's elderly parent.  The dad passed away in 2009 but the mom is still alive.  So in this case will my client be able to get 1/2 of the step up basis of the hose based on 2009 FMV?

 

Thank you.

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qbteachmt
Level 15
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When I reread all of this, the terminology is a mix, including plural or not. Let's review:

Dad died in 2009. Mom was JTROS?

Mom gave the house to your client. It is not inherited by your client, so there is no step up in basis in 2018 for your client. That's the problem with this type of transfer.

I sure hope this is not in California.

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kzaccountingllc
Level 3
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This is in WA state and yes mom is JTROS.

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BobKamman
Level 14
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Washington is a community-property state, so the basis would be stepped-up on the entire property at the first death in 2009.  Too bad he didn't die in 2007; prices fell about 20% in the two-year period 2007-09.  They then increased 60% from 2009 to 2019, so you probably have a gain of about $75,000, less any improvements bought since the first death.  

You did file an extension so that you could sort this all out, right?

Just-Lisa-Now-
Level 15
Level 15
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If they had died and left the house to the child, then child would get the stepped up basis at the date of death...I always advise my clients not to gift a house, but to die with it and leave it to the person they want to have it.

Unless there is stepped up basis from the other parent passing (as Bob mentioned above), then your original assessment is correct...be sure to take into consideration any capital improvements done to the house during the time mom owned it, that will increase basis and lower the taxable gain.


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qbteachmt
Level 15
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Was a gift tax return filed in 2018? If not, you might want to take care of this first.

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BobKamman
Level 14
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The gift tax return isn't the responsibility of the client.  Try to upsell to the parent, and risk opening Pandora's box. 

@Just-Lisa-Now-   It's interesting that you decided the "parent" is "mom."  I'm not a psychic either but I play one on tax message boards, now and then.  

Just-Lisa-Now-
Level 15
Level 15
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Not sure why I assumed it was Mom...guess I had a 50/50 shot at being right.

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BobKamman
Level 14
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@Just-Lisa-Now- 

Well, those were the odds before Windsor.

qbteachmt
Level 15
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Of course the gift tax is the issue for the parent. If the tax on the gain seems hefty, wait until it is related to the giving of the property which never got reported.

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BobKamman
Level 14
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Except for the 1%, filing gift tax returns is an anachronism.  And really, for only 10% of those.  The capital gain is not going to be "related" to the unfiled gift report, and an IRS examiner is not going to spend two minutes picking up a zero-tax return.  

I never advise clients not to file a 709.  I just tell them "nothing" if they ask me what happens if they don't do that.  It's like the debate over how many angels can dance on the head of a pin, or where to send a 3115.