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Dear Tax Talk,
My mother, father and I jointly own a condo. My father is now deceased and prior to his death, he quitclaimed his right to the property to my mother. My mother has now transferred her interest in the property to me. As long as I keep the property, do I have to pay any taxes on this transfer? Will my mother have to pay capital-gains taxes? Thank you.
You don’t owe a transfer tax. But if you sell the condo, you will report the sale on your tax return and pay any taxes due at that time.
But let’s take a look at your mother’s situation, as there are some possible issues for her. Your mother will not have to pay capital-gain taxes on the transfer of the condo to you. However, more than likely she will be required to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, with the IRS.
If your mother is a U.S. citizen or resident and the value of the condo interest that she is transferring to you is more than $14,000 — which is the annual exclusion amount — she is required to file Form 709. The lifetime gift tax exclusion amount is $5.45 million. That means taxes become a consideration once this gifting threshold is reached.
How to fill out Form 709
Your mom will report the gift to you on Form 709, Schedule A, Computation of Taxable Gifts in Part 1. Column D is where she reports her adjusted cost basis in the gift.
You may be asking yourself, why is that so important to know? The reason is that the adjusted basis in her two-thirds ownership in the condo is now added to your one-third adjusted basis in the condo. Because you received the property as a gift, her adjusted basis transferred to you. If or when you sell your property, the adjusted basis, along with any improvements you make and costs associated with its sale, will be subtracted from the selling price to determine the taxable gain or loss.
You have not provided any information regarding the original purchase date and if any gifting of your interest took place at that time. You might want to consider seeking the advice of a qualified tax professional to make sure everything is in order regarding the calculation of your current basis in the property.
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Thank you for the great question and all the best to you.
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