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George Saenz, the Bankrate.com Tax Talk columnist Cost basis of gifted property

Dear Tax Talk,
My husband died in 2005. In 1983 we were both given 75 acres of farmland. I recently sold it and now have to figure out capital gain tax but cannot figure out what the land was worth in 1983 because the records do not go back that far. Also, do I have to claim that far back or only to 2005? Help!
-- Kim

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Dear Kim,
In 1983 when you were given the land, it was a gift for tax purposes. Your basis in a gift is not the value at the time of the gift; that stepped-up basis only applies to inheritances. Your basis in a gift is the same as that of the person who gave it to you. Therefore, you have to go back further than 1983 to determine the original acquisition price. Usually, the local property tax collector has these records.

Because you inherited your husband's half of the land when he died in 2005, half of your basis in the 75 acres is the value at the date of his death. The other half of the basis is half of the original acquisition cost. For example, if the land originally was purchased for $10,000, then half of that -- or $5,000 -- is your cost basis. If in 2005, the value of the land was $100,000, then half of that -- or $50,000 -- is your cost basis. Your total basis for determining gain or loss on the sale would be $55,000. Improvements can be added to the cost of the property unless they are otherwise included in the date-of-death value from your husband.

To ask a question on Tax Talk, go to the "Ask the Experts" page, and select "taxes" as the topic.

Bankrate.com's corrections policy-- Posted: May 3, 2007
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