 | Jeff Otto is Branch Manager of Lawyers Title Insurance Corporation which is a member of LandAmerica Financial Group, Inc., a premier national provider of title insurance and settlement services. Lawyers Title has been in the local marketplace since 1955. Jeff has been with Lawyers Title for 34 years, the last 24 right here in Wichita. You may contact Jeff at (316) 682-9600 x 201 or by e-mail at jotto@landam.com |
Real Estate
2005-07-01 10:52:00
Mom deeded me her home - how do we sell it and save on taxes?
: About nine years ago, my widowed mother, then 63, thought she was dying because she felt terrible and had no energy. Her doctors couldn't find anything wrong. So, to avoid probate at her passing, she deeded her house to me, her only child. Then mom went to a new doctor who specializes in "senior citizens." He did some simple appearing tests and found out that my mom's thyroid gland wasn't working like it's supposed to. This new doctor then prescribed a little inexpensive daily pill for her thyroid. Now she feels a lot better and has more energy than I do. Mom decided that she wants to move from her house to a great, nearby assisted-living center, where several of her long time friends live. But in order to do so, it will be necessary to sell "her house." My tax adviser says, since the house was a gift to me, I took over mom's low $76,000 basis, which was her original purchase price. Today, the house is worth about $480,000. How can I avoid paying tax on this capital gain sale so mom can have the money to live in that assisted living center?
ANSWER: A great question, but sadly, a bad situation for you and your mother. Your mom's tax adviser appears to be correct. Deeding her house to you was a very costly mistake for you both. As the donee, you received your mother's low $76,000 adjusted cost basis. Now, when you want to sell the house for your mother's benefit, there will be a large taxable capital gain. And because your mom is not on the title, she can't qualify for the Internal Revenue Code 121 principal residence sale $250,000 tax exemption.But I would suggest that if your father was a co-owner of the house and your mother inherited his share of the house at the time he died, then your mother became entitled to a new "stepped-up basis" of market value on the date of death. If that is the situation, be sure your mom's tax adviser is using a date of death stepped-up basis to establish your adjusted cost basis as the donee. I'll be the first to say that I'm not a tax expert, but a good tax attorney can offer you great advice on things of this nature. More next month.
