Selling Share of Home

[KBTS]

It’s late and I can’t think straight anymore….hoping for some help.....

In 1980, client’s mom bought a house for $40,000. About 10 years ago, his mom deeded property over to him and his sister for $1. The sister lived in house with mom until mom passed away 2 years ago. Before she passed away, mom and sister split the cost of installing a new furnace in the home. Last December, the sister bought client’s half of home from him for $25,000.

Since the transfer of the property from mom to kids was in fact a gift, his basis in the house is $20,000 and he will have a $5,000 gain on this transaction. Since he did not pay anything for the furnace, that should not effect his basis. Does this sound correct?

[OldJack]

Sounds correct to me... well I guess you could say $20,000.50 as half of the $1 adds to his basis if he really paid it.

[Kram BergGold]

Disagree

The house cost $40,000 in 1980. In 2006 1/2 of the house sold for $25,000. There has to be a gift componant here. This is not a straight sale. The FMV in 2006 has to be way over $50,000. The brother has made a gift to the sister and needs to file a gift tax return as well as reporting a $5,000 gain.