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Hope you can help me. My husbands father died in 2003. A couple of months later his mother quit claim deeded the house to my husband and his two brothers. She had a use and occupancy agreement and stayed in the house tilll her death in 2006. In 2007 the 3 brothers sold the house for 270000.00 (they split the proceeds in 3rds, and it was reported to the IRS via 1099S as thirds)and it was assessed at that time for 296000. My two brother in laws have filed their taxes showing a 12000.00 loss. But I am afraid to, everything I have been told indicates that we need to use the mother's basis which would be 1/2 the FMV at the time of her husband's death and 1/2 of their original basis, add the two together and you get her adjusted basis. In my calculations her adjusted basis 159000.00, no loss but rather a gain, Help me, I'm going crazy. Robin

larry · Joined: 27 Jun 2007 Posts: 3322 474.67 Dollars($)

Hi Robin,

Welcome to the forum.

As far as I know if you gain any amount of money after selling the property then you will have to pay tax on it and the capital gain tax exemption if you don't qualify for capital gain tax exemption.

Check out this discussion to know more about capital gain tax exemption at http://www.mortgagefit.com/know-how/capitalgainstax.html#14089

Feel free to ask if you have any further questions.

Best of luck,
Larry

jerry

Well Robin, as much as I know the cost basis should be the lower of the original market price or the appraised value of the home at the time the three of you received property. Any improvement/depreciation is then taken into account along with the cost basis to calculate the adjusted basis. The capital gains is the difference between sale price and adjusted basis. This has been discussed earlier at:

http://www.mortgagefit.com/tax-legalaspects/capital-gains.html .
http://www.mortgagefit.com/propertytransfer/capitalgaintaxes.html .

Please have a look at the pages above. Also consult a tax advisor in this regard.

Thanks,

Jerry.

blue · Posted: Thu Mar 27, 2008 5:52 pm Post subject:

Hi,

Welcome to Mortgagefit discussion board.

If the sale price is greater than the adjusted basis then you may liable to pay capital gain tax. To calculate adjusted basis first try to establish the cost basis. The cost basis is the initial purchase price. Then add to it the amount you have spent for the improvements of the house. Then subtract all the depreciation. After that what remains is your adjusted basis.

Do let me know if you have any other questions.

Thanks
Blue

larry · Joined: 27 Jun 2007 Posts: 3322 474.67 Dollars($)

Hi Robin,

To calculate the adjusted basis you will have to add the money that you have spent to make any improvements in the property with the value of the property when it was quitclaimed to you.

Say the value was $250,000 when it was quitclaimed to you and you have spent $10,000 to make improvements. Then the adjusted basis will be $260,000. And you have sale the property on $270,000. So your gain will be $10,000. But if the value was $296000 and you have spent $10,000 to make improvements then your adjusted basis will be $306,000. So in that case, your loss will be $36,000.

Hope it is clear to you.

Feel free to ask if you have any further questions.

Best of luck,
Larry

Niicss · Posted: Mon Jun 23, 2008 6:28 am Post subject:

Hey Robin.

All the above posters have given very good information. I just want to say that you will need to pay capital gain tax if the sell price of the property is more than then the adjusted basis. The adjusted basis is the amount in which you have bought the house + cost of improvements and maintenance.

That means Adjusted Basis = (initial purchase price + maintenance & improvement cost) – depreciation.

So capital gain tax will be implied on = (sale price – adjusted basis)

Hope I can make it clear.

Let me know if you have any more questions.

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