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Taxes on an inherited home
Dear Tax Talk:
My recently-deceased mother and also-deceased
cousin purchased a home together in 1974 for $25,000. When my cousin
died in 1980, my mother had my name put on the deed as I was living
at home at the time. We were listed as joint tenants.
I got married in 1993, moved out of the home
and purchased a home with my now ex-husband. My mother passed away
last year. At the same time, my ex quitclaimed our house to me.
I sold both of them in the same month last year.
I sold my mother's home for $130,000, purchased
a home of my own for $204,000, and put $110,000 of the sale of my
mother's home into my new home. With the remaining money, I purchased
a few things for my new home.
My tax adviser tells me that I owe about $24,000
to the Internal Revenue Service (20 percent of the selling price)
because my mother's home was not my primary residence. Not only
was my name on the deed of the home, but my mother left a will in
which she left all her possessions to me. Do I really owe the IRS
$24,000?
Karina
Dear Karina:
When you inherit property, your basis for tax purposes in
computing gain or loss is the value of the inherited property at
the time of the decedent's death.
What complicates matters in your case is that
you were a joint owner on the title of the property, so technically
you only inherited half of the property. If this were the case,
you would only get a step-up to value on your mother's half of the
property.
However, since you never contributed to the
purchase of the property, your basis is the full value of the house
at her death. Since she recently passed away, you probably have
no gain on the sale, which means you don't have to pay $24,000 to
the IRS. I'd look for another tax adviser familiar with the rules
of Internal Revenue Code Section 2040.
-- Posted: Feb. 12, 2002
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