Basis of Gift

[peggysioux]

Question regarding the partial gifting of a residence. If appraised value of home is $350,000 and taxpayer sold home to her adult child for $250,000 and gifted the remaining $100,000, are you required to divide the basis by the % of purchase/gift? For example:

$350,000 appraised value

250,000 is 71% (selling price)

100,000 is 29% (gift)

So if basis is $175,000 than the adjusted basis to carry to the gift tax return for the gifting portion of the home is $50,750.

Or can taxpayer put a zero basis on the gift and carry all $175,000 basis to the sale of the home to lower the capital gain on the sale of the home?

I would think one has to go with my first scenario but wanted to get input from knowledgeable tax preparers.

[taxea]

But she has a basis so I don't think you can do that. The 709 and the sale are two separate issues. Follow the instructions for each separately and see what happens.

[peggysioux]

But she has a basis so I don't think you can do that. The 709 and the sale are two separate issues. Follow the instructions for each separately and see what happens.

I realize that taxpayer has basis. But basis is used to determine capital gain that the parent has to pay on the sale of the home but I also have to determine the basis of the gifted portion of the home to the adult son. So, would the total basis be used in the calculation of capital gains - sale price less her basis and on gift tax return, the gifted portion of the home would have a zero basis??

[Nashville]

Basis is her cost

Peggy, in your example, her daughter's basis is only $250,000 with one exception.

None of the aforementioned gift values can be added. However, if there is any gift tax actually PAID as a result, then the amount of gift tax PAID is added to donee's basis.

Chances of any Federal gift tax paid are extremely remote, but some states (I don't know where you are) require gift taxes to be paid on much smaller thresholds.

[TAXNJ]

Your answer

You might consider reviewing the following to address your scenario:

You may find examples of what you are trying to accomplish shown if you research the following (see example 2 in the reference)

§ 1.1015-4 Transfers in part a gift and in part a sale.
(a) General rule. Where a transfer of property is in part a sale and in part a gift, the unadjusted basis of the property in the hands of the transferee is the sum of—
(1) Whichever of the following is the greater:
(i) The amount paid by the transferee for the property, or
(ii) The transferor's adjusted basis for the property at the time of the transfer, and
(2) The amount of increase, if any, in basis authorized bysection 1015(d) for gift tax paid (see § 1.1015-5). Also, examples of what you are trying to accomplish shown


In addition,
TTB 21-34
Basis of Gifts
Basis of property received as a gift is the donor’s adjusted basis
at the time of the gift (IRC §1015). Exceptions:
Gift of depreciated property. If the donor’s adjusted basis was
higher than the FMV at the time of the gift, the recipient’s basis
for calculating loss is the FMV at the time of the gift.

ALSO TTB CHART 6-1

[peggysioux]

Thank you for your in-depth answers; very much appreciated. However, I am either very tired or just dense this morning as I still don't see a clear answer. I am really not trying to determine the adult child's basis at this point in time, but trying to figure out what basis should I put on the gift tax return for the gifted portion of the home.

[TAXNJ]

Clearer

Thank you for your in-depth answers; very much appreciated. However, I am either very tired or just dense this morning as I still don't see a clear answer. I am really not trying to determine the adult child's basis at this point in time, but trying to figure out what basis should I put on the gift tax return for the gifted portion of the home.

Yes, when you feel clearer, you might want to look at see § 1.1015-5 mentioned which gives examples with sale & gifting.

[Burke]

I am really not trying to determine the adult child's basis at this point in time, but trying to figure out what basis should I put on the gift tax return for the gifted portion of the home.

The simple answer is $100,000 goes on the gift tax return, which is the amt gifted (sale amt less FMV). IF gift tax is paid by the donor, then that amt is added to the basis for the donee.