Us 3 kids sold Mom n Dads house. Tax HELP! thx (sales, real estate)

[denelli]

Hi All, Three of us kids owned mom and dads house since 2006 and just sold it. The house was transferred into all three of our names in 2006. Not one of us kids lived in it during our ownership. We just sold it for 150k and that is split three ways. What should I prepare for when tax time comes? Any help would be greatly appreciated! Thank you in advance!

[joeymarine]

The best thing to do is talk to either assisted with settling their affairs as they already know what has been involved.

[JERSEY MAN]

Originally Posted by denelli

Hi All, Three of us kids owned mom and dads house since 2006 and just sold it. The house was transferred into all three of our names in 2006. Not one of us kids lived in it during our ownership. We just sold it for 150k and that is split three ways. What should I prepare for when tax time comes? Any help would be greatly appreciated! Thank you in advance!

You should be able to defer any taxes as you can say you lost money on the house. Get a real estate person to give you and estimate on what the house was worth in 2006(height of the market) to what is was worth now when it was sold. It's a loss for all 3 of you.

[tom1944]

Be careful- talk to an accountant. How was the transfer made -was it gifted to each of you or sold to you? Did mom and dad continue to live there.

[MaverickDD]

Originally Posted by denelli

Hi All, Three of us kids owned mom and dads house since 2006 and just sold it. The house was transferred into all three of our names in 2006. Not one of us kids lived in it during our ownership. We just sold it for 150k and that is split three ways. What should I prepare for when tax time comes? Any help would be greatly appreciated! Thank you in advance!

In 2006, how did you come to own 'mom and dad's house'?
Why was the house transferred into your names?
Are mom and dad still living?
If not, when did they die?

[denelli]

Originally Posted by MaverickDD

In 2006, how did you come to own 'mom and dad's house'?
Why was the house transferred into your names?
Are mom and dad still living?
If not, when did they die?

1.The house was gift to all of us.

2.Not sure why it was put in all of our names and not a trust. Probably because my older sister is a control freak and thinks she knows everything. It was her idea.

3. Dad passed 2004 and mom just moved out of the house in 2010 and is still with us. She now lives in assisted living.

Thank you all for your honest advice. I will keep reading and try to digest all advice. Could some of you side with one another to narrow it down to the best way? Thank you so much in advance...

[balancesheet]

Originally Posted by denelli

1.The house was gift to all of us.

2.Not sure why it was put in all of our names and not a trust. Probably because my older sister is a control freak and thinks she knows everything. It was her idea.

3. Dad passed 2004 and mom just moved out of the house in 2010 and is still with us. She now lives in assisted living.

Thank you all for your honest advice. I will keep reading and try to digest all advice. Could some of you side with one another to narrow it down to the best way? Thank you so much in advance...

So assuming your parents co-owned the house (50% each) - your mom inherited your dad’s portion in 2004 when he passed and became the sole owner of the house.

Her basis of the house = (the purchase price / 2) + (market value of the house in 2004 / 2).

So in 2006 when she deeded the house to the 3 of you, her basis became the basis of the house for the 3 of you.

Compare the basis with the $150,000 – since the house was not the primary residence for any of you, none of you qualify to exclude the capital gain from tax, assuming there is a gain.

Report the gain, if any, on the tax return. I am uncertain if you can deduct any loss though.

[NJGOAT]

What's done is done, but each of you should go and speak with an accountant (or all three together) to determine what the tax implication is for each of you individually. This is something that should have been discussed before you put the house on the market. You may be in for a surprise.

[MaverickDD]

When you file your 2011 income taxes, you will be required to pay income tax on your share of the 'gain' from the sale of the property. Your gain is computed by subtracting your 'adjusted basis' from the sales price. Hence, you need to determine your adjusted basis.

Since the property was gifted to you, your basis in the house is the same as the basis of the giver -- in this case, mom. Computing mom's basis gets a little complicated due to the probability that the house was owned jointly by her and dad prior to his death. (Is that assumption correct?) Therefore, half of the basis is 'cost-basis' and the other half is 'fair-market basis' on the date dad died.

Assuming that the house was in both mom and dad's name when dad died in 2004 and that mom inherited dad's half, mom's post-2004 revised basis is calculated as follows:
* Cost basis attributable to mom's half -- Purchase price from when they bought the house plus the cost of capital improvements made over the years divided by two. plus
* Fair Market basis attributable to dad's half -- One-half of the value of the property on the date that dad died in 2004.
This revised basis becomes the basis for the three siblings.

Example:
* Mom and dad bought the house in 1970 for $20,000. Over the years, capital improvements costing $50,000 were made. The cost basis attributable to mom's original half is ($70,0000 divided by 2) = $35,000.
* In 2004, the house was worth $200,000 on the day dad passed away. The fair market basis attributable to the half that mom inherited from dad is half of the home's fair market value on the date of death. ($200,000 divided by 2) = $100,000.
Therefore, in this example, the tax basis of mom's gift to the three siblings is ($35,000 + $100,000) = $135,000.

To calculate 'gain' on your income tax return:
1) You may also add selling expenses to your basis, so if you paid a Realtor's commission of $9000 your adjusted basis becomes $144,000.
2) Subtract $144,000 from $150,000 to calculate the net gain of $6000.
3) Assuming all proceeds were distributed evenly, divide this by three to get each siblings' share. Each will report a capital gain of $2000 on their 2011 income tax return.

Certainly run this past a professional income tax preparer -- but tell them to give you a break on the price since I've already done the work!

[danxp]

if the house was "gifted" to the children, doesn't the 12k/yr threshold apply?

what if there was an underlying mortgage? or what if the house was underwater due to excessive refinancing w/cash out options?

another example i'd be curious about is this...
- lets say i bought a house for $200k cash, then 'gifted' it to my 2 children in 2008... they both then decide to sell it for $150k in today's market... so based on this thread am i correct to assume that there will be no tax paid by anyone in this scenario?