Expert: Dick Dennis - 4/22/2010

Question
QUESTION: I live in Maryland if that makes a difference.
In June 2007 my sister passed and she left her house, value low 200k, to my mother and myself, who also lived with her, thru Joint Tenants life tenants in the deed.
My mother passed in November 2009, passing the house to me thru deed.

I am thinking of selling the house this year, 2010, but don't want to get in tax trouble with 2010 tax laws.

As I understand 1/2 half of cost will be the assessed value at the time of my sisters death and 1/2 the assessed value at the time of my mothers death. Is this correct?
Also will the 2010 tax laws change how the cost will be figured?

I will then subtract the cost and sale expenses from the sale proceeds to determine my tax obligation.
Is my thinking correct or will the 2010 tax laws make things different?

Thank You In advance
Howard

ANSWER: Assuming the house was not your residence at any time, Howard, you and your mother inherited the basis of the house at fifty percent each. So your half basis is established at that time. The basis of the property would be what your sister's basis was. When your mother passed, her half of the property was left to you at half of the value of the house at the time of her passing.

So now you have half of your sister's basis, plus your mother's basis established when she died. Because of this down real estate market, it is possible that you have a house that is worth less than what your sister paid, not knowing when she bought it.

Then when you sell the house, yes, you add the cost of sale to your basis and pay any tax you may be liable for in the difference between your sale price and your adjusted basis. However, I strongly recommend you consult with a CPA or other good tax expert to protect your interests. I do wish you well.

Dick Dennis
dixiedee13@aol.com

---------- FOLLOW-UP ----------

QUESTION: As I stated in my original question this was my residence at her time of death and up to this date. So how will this change things if at all?
Is my sisters basis what she originally paid for the house some 15+ years ago?

Thank You
Howard

Answer
Yes. But the way the present real estate market has fallen, there is that possibility that the value may have dropped to below what your sister paid or maybe about the same. Otherwise, it should not have to change anything. It's good that it has been your residence, otherwise you would have to treat it a little bit differently when you sell.

Since this has been your residence, you need not be concerned about any taxable gains. That's because you are entitled to have up to a $250,000 capital gains exemption as long as you have lived in the house for at least two years within the last five years ($500,000 if the house belongs to you and a wife and pay your taxes jointly each year). So, the only way any of the cost of the sale would come into play would be if indeed you do have something close to the $250,000 gain.

Again, a good CPA or tax expert will gladly explain it to you. Be well.

Dick Dennis
dixiedee13@aol.com