Tax Law (Questions About Taxes)/House Sale

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Question
I was on the original deed with my mother in 2008 when she bought a house; then because she was diagnosed with cancer she signed it over to me totally.  She died in 2009 & after several dead-beat tenants I finally sold the house in 2015.  She paid several thousand dollars more for it than I sold it for (but it's finally out of my hair).  I never lived in the house so....how do I file the income?  Do I have to pay capital gains tax because I never lived there?  Or because it was a loss..what do I do?  Thanks.

Answer
Marcia,

Thanks for your question.

Since the property is deemed a gift, your basis in the house is her original cost. That basis is reduced by depreciation allowed or allowable during the period it was a rental. This simply means that you must reduce the basis for depreciation during the rental time, whether you took depreciation or not.

Report the sale on Form 4797 and Schedule D, following the instructions. You don't report the whole thing twice.There are two elements involved here. First is the actual sale. In a nutshell, you take the sale price minus costs of sale (such as Realtor's commission) that will be listed on the HUD-1 form received at closing. Not everything on there is deductible. Then subtract your adjusted basis. The difference is your taxable profit or deductible loss.

If, during the period of rental you had losses that could not be deducted due to the fact they were passive losses in excess of the allowed amount per year, you can deduct any of those suspended losses in the year of sale. This component starts on Form 4797 and flows to other parts of the return as it instructs.

Most likely, some of this is above your head. This is an extremely complex area of tax law, and I would recommend you get a professional to prepare your taxes for you so this is correctly reported.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA

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I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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