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What are the tax implications of selling a gifted home?

What are the tax implications of selling a gifted home?

Q: How is the fair market value of gifted property determined?

The fair market value of gifted property is typically determined by assessing what a willing buyer would pay a willing seller in an open market. This can involve appraisals, comparable sales, or market analysis. It's important to document this value, as it establishes the cost basis for tax purposes when the property is sold.

Q: How do you determine the fair market value of a gifted property?

To determine the fair market value of a gifted property, consider hiring a professional appraiser or using comparable sales in the area. The fair market value is what the property would sell for in an open market. This value is crucial for establishing the cost basis when you sell the property later.

Q: Do you have to pay taxes on inherited property that you sell?

When you inherit property, you generally do not pay taxes at the time of inheritance. The cost basis for inherited property is typically stepped up to its fair market value at the date of the decedent's death. If you sell the property for more than this stepped-up basis, you may owe capital gains tax on the profit.

Full question:

My father gave his home to my brother & I via a 'Deed of Gift' 4 yrs. ago. The Fair Market Value at that time might have been $60,000. We have sold the house for $54,000 and will net about $24,000 each after closing costs & realtor fees. What are the Federal income tax points that we need to be aware of? Do we each have a $24,000 capital gain or a $3,000 capital loss?

Category: Taxes
Date: 04/07/2025
State: Alabama

Answer:

When property is given as a gift, the recipient generally takes on the donor's cost basis. In your case, since your father gave you the home, your basis is likely the same as his, which is the Fair Market Value at the time of the gift, around $60,000. Since you sold the house for $54,000, you have a loss.

Your net proceeds of $24,000 each do not represent capital gains because you sold the property for less than its basis. Instead, you each have a capital loss of $6,000 ($60,000 basis - $54,000 sale price). You can use this loss to offset other capital gains or deduct up to $3,000 against ordinary income on your federal tax return. For specific advice tailored to your situation, it's best to consult with a local tax professional who can review all relevant details.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

How much tax do you pay on gifted property?

When you receive property as a gift, you typically do not pay taxes at the time of the gift. However, if you later sell the property, you may be subject to capital gains tax based on the difference between the sale price and the cost basis. The cost basis is usually the donor's basis, which is often the fair market value at the time of the gift. If you sell for less than this basis, you may incur a capital loss instead.

How does gifting a house affect taxes?

Gifting a house generally does not trigger immediate tax consequences for the recipient. However, the recipient assumes the donor's cost basis for tax purposes. If the recipient later sells the house, they may face capital gains tax if sold for more than the basis. If sold for less, they could realize a capital loss, which can offset other gains or be deducted against ordinary income.

How is the fair market value of gifted property determined?

How do you determine the cost basis of gifted property?

The cost basis of gifted property is usually the same as the donor's basis at the time of the gift. This means if the donor purchased the property for $50,000, that amount becomes your basis, regardless of the property's fair market value when gifted. If the property has appreciated, this can lead to capital gains tax when sold.