vacation home gift

[Unregistered]

Grandparents gave parents a vacation home. Parents used it while the kids were growing up and later gave it to the 4 kids. Kids have now sold the property for $400K. One of the kids is contacting me for tax advice.

My initial thought is that the sales proceeds are reported as LTCG -- $100K to each kid. Cost basis would be grandparent's original cost, which no one knows, plus improvements (new roof) that kids paid for.

I don't think like-kind exchange can be used due to the personal use nature of the asset. Are there any rules about how long investment property must be held for it to qualify for LKE?

Also, is there any way sec 121 can be utilized? I'm not sure if any of the kids could demonstrate that the house was used as a primary residence.

Thanks for any help

[Bees Knees]

Interesting that the kids contact you AFTER they sell the property.

Like Kind Exchange could have worked, if they had converted it to 100% rental property for at least two years, then exchanged it for new rental property.

Section 121 could have worked, if all of them moved into the home and used it as their peronal residence for at least two years.

Now it is too late to talk about any of that. Obviously they did not do any of the above. And I doubt they would have done any of the above even if you told them prior to sale. They wanted cash. That's why they sold.

[Uncle Sam]

Vacation Home Gift

I suggest before you do anything more, find out whether or not any gift tax return was ever filed on this property, and if so, what values were used for transfer purposes.
If not, you're client is going to have a beaut of a time getting real estate values dating back in time, calculate when improvements were made and how much it would have cost way back when, etc.
The prior poster pretty much explained that the family didn't take any distinct course of action regarding the usage, so no tax benefit can now be claimed.
It appears to me that this is purely a capital gain to all four children. The problem is to determine the value at the time they were gifted the property for cost basis determination.

[Unregistered]

Cost basis

Thank you for the previous posts and you are right that their intent was to get cash.

Just to confirm their cost basis = original grandparent's purchase price (probably something like $1,000) + cost of improvements made by parents and by kids?

I did mention to him that it's a lot easier for me to provide tax advice if they contact me PRIOR to closing the deal. After the fact all I can do is make him sad about missed opportunities.

Thanks again for your help.