USA Capital Gains on sale of inherited property

[BOBBY2970]

In 2012 my mother purchased a home and had her and my name on the deed for approximately 100k, at the time it was worth appx 129K. She lived in the home for 5 yrs. before passing away in 2017. The deed was rewritten to just my name due to survivorship in 2017. My daughter has lived in home since 2018 and we have done appx 20k in home improvements since then. She is now going to purchase the home for 160-200k. The homes market value is approximately 350k. Will I be responsible for capital gains on the property. As I have never lived in that home? If so how much should I expect?

 

[DrStrangeLove]

So, a couple of questions....

When you and your mother bought the home, did you two own as a tenancy in common, or as a joint tenancy with right of survivorship? If you owned it as a tenancy in common, you may have more basis in the house than think. On the other hand, if you owned it as a joint tenancy with right of survivorship, you may not have as much basis as you expect. And that difference may affect how much gain you're potentially taxed on. You might want to ask a real estate or probate lawyer about the details in your jurisdiction; property and inheritance laws vary by state, and some states--looking at you, Pennsylvania--have some weird laws.

If you've never lived there, you wouldn't qualify for the exclusion on sale of a primary residence (IRC Sec. 121).

Given that the market value is about 350K, and you're proposing selling it to your daughter for up to 200K, have you looked at the tax implications of bargain purchases between related parties? The IRS might look poorly on your giving her such a break on the price, and may impute the difference between the price and the market value as income to her (IRC Sec. 267). She might get a tax bill on 150K or more imputed income that way, and that might not be a welcome surprise.

 

[Business2122]

In 2012 my mother purchased a home and had her and my name on the deed for approximately 100k, at the time it was worth appx 129K. She lived in the home for 5 yrs. before passing away in 2017. The deed was rewritten to just my name due to survivorship in 2017. My daughter has lived in home since 2018 and we have done appx 20k in home improvements since then. She is now going to purchase the home for 160-200k. The homes market value is approximately 350k. Will I be responsible for capital gains on the property. As I have never lived in that home? If so how much should I expect?

If you structure the property as an investment property trust, then you could defer the capital gain and property tax