Sale of Property Received By Gift

I have sold property (either real or personal property) which was given to me.  How much do I pay Tax on?

You will pay tax on the difference between the "Sales Price" less "Expenses of sale" and your "Basis".

Items or documents you will need to find:

• Sales Contract

• Closing Statement

• If the property is listed on a tax role obtain a copy of the tax statement at the date it was gifted to you

• The cost or if depreciation was claimed the adjusted basis to the person making the gift to you

• List of all capital improvements you have made and enough documentation to prove the amount expended, that it was used for the property being sold, that you paid for it, and that it has not been previously expensed for tax purposes

• Any other information that you determine is important for this transaction

• If this is an installment sale, obtain the promissory note, security agreement or mortgage and amortization schedule.

Sales Price

Usually, sales price will be shown on the sales contract and closing statement.  IF this is an installment sale it may not be necessary to include the entire sales price in the year of sale.

Expenses of Sale

Expenses of sale will appear on the closing statement.  Fixing Up Expenses: In addition to those costs you may have incurred costs of fixing up the property 30 days before or after the date of the sale.

Basis

This topic is restricted to property which has been received by gift.

Refer also to related topics at Personal Residence Sales - Basis.  Also there is an explanation of "Improvements" at Personal Residence Sales - Basis and Examples of Improvements.

Property Received as a Gift

To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it.

FMV Less Than Donor's Adjusted Basis

If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis, earlier).

If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or disposition of the property.

Example. You received an acre of land as a gift. At the time of the gift, the land had an FMV of $8,000. The donor's adjusted basis was $10,000. After you received the land, no events occurred to increase or decrease your basis. If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss.

If the sales price is between $8,000 and $10,000, you have neither gain nor loss. For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain.

Business property. If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property.

FMV Equal to or More Than Donor's Adjusted Basis

If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Increase your basis by all or part of any gift tax paid, depending on the date of the gift.

Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. See Adjusted Basis, earlier.

Gift received before 1977. If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. However, do not increase your basis above the FMV of the gift at the time it was given to you.

Example 1. You were given a house in 1976 with an FMV of $21,000. The donor's adjusted basis was $20,000. The donor paid a gift tax of $500. Your basis is $20,500, the donor's adjusted basis plus the gift tax paid.

Example 2. If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift.

Gift received after 1976. If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. Figure the increase by multiplying the gift tax paid by the following fraction. The numerator is the net increase in value of the gift and the denominator is the amount of the gift.

The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes.

Example. In 2000, you received a gift of property from your mother that had an FMV of $50,000. Her adjusted basis was $20,000. The amount of the gift for gift tax purposes was $40,000 ($50,000 minus the $10,000 annual exclusion). She paid a gift tax of $9,000. Your basis, $26,750, is figured as follows:

Fair market value	$50,000
Minus: Adjusted basis	20,000
Net increase in value	$30,000
Gift tax paid	$9,000
Multiplied by ($30,000 ÷ $40,000)	.75
Gift tax due to net increase in value	$6,750
Adjusted basis of property to your mother	20,000
Your basis in the property	$26,750

Solutions are dependent upon facts & circumstances, law and the objectives.  These elements vary from one time to another, from one circumstance to another and from person or entity to another

 

Date former residence sold
Face amount of mortgage received
Have you purchased or built a new principal residence?	Yes No
If no, do you plan to?	Yes No
Is or was any part of either main home rented or used for business?	Yes No
At time of sale, age 55 or older?	Taxpayer Spouse
Did the person(s) age 55 or older use the property as a main home for at least 3 out of the last 5 years?	Yes No
Who owned the home (T/S/J)
If sale occurred before 5/7/99, do you elect to take the one time exclusion for taxpayer's age 55 or older?	Yes No
If sale occurred after 5/6/99, do you elect the exclusion?	Yes No
Selling price of home
Expense of sale
Basis of home sold

 

Fixing Up Expenses	Date Performed	Date Paid	Amount

 

Item	Date	Date	Amount
Gift from donor
Adjusted Basis to Donor

 

#	Description	Amount
	Settlement fees and closing costs
	Abstract and recording fees
	Legal fees
	Surveys
	Title Insurance
	Transfer or Stamp Taxes
	Back Taxes you Paid at date of transfer
	Other___
	Other __