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Visitor I

Selling a gift/inheritance asset

Trying to figure out the tax implications once I sell a property that will be quit claimed to my brother and I.  My father recently passed away and he owned a home that was my grandmothers he inherited when she died in 1997.  When my father married my step mom in 2009 he did a quit claim adding my step mother to the title.  His intention was always for my brother and I to receive the house if anything ever happened to him.  My step mom wants to just do a quit claim deed to my brother and I following my dad's wishes.    We will be selling the home soon.  The house value is around $600,000.  The proceeds will be split 50/50 between my brother and I.  My concern is will this still be treated as an inheritance (thus tax free) even though he added my step mom to the title and she will deed off while still living?  If not is it considered a gift thus taxable for how much?

1 Comment
Catalyst V

Selling a gift/inheritance asset

Please note that if you are in a community property state, the below DOES NOT APPLY!!!

When you receive an inheritance, your cost basis as the recipient of that inheritance is the FMV of the property on the day the person who left it to you, passed away - not the day you inherited it.

When you receive a gift, you also receive the cost basis of the person who gave you the gift. Assuming your step mom inherited 50% at the same time you and your brother inherited 50% (25% for each of you) then your cost basis is the same as your step mother, because when she gifts her 50% to you, she also gifts her cost basis.

Example:

You dad inherited the house from his mother and on the date of his mother's passing (your grandmother) the FMV of the property was $50,000. Later, your dad added his wife (your step-mom) to the deed. So for your dad and step-mom they each have a cost basis of $25K.

You and your brother inherited your dad's 50% share of the property when he passed. On the day he passed the FMV of the property was $100,000. So your cost basis is $25K and your brother's cost basis is $25K.

Now the step-mom's cost basis on her 50% is still $25K. So if she quit claims it equally to you and your brother, you each get $12,000 of her original $25K cost basis. That means your cost basis is $37,500 and your brother's cost basis is the same.