How is tax determined on house sale?

[Lot249]

New Jersey.
If a property is transferred (not sold), and the property (25 years later) is sold, on what is the tax obligation based?
Case in point, the initial cost of construction (1973) $40,000 (builder's primary residence). Value If sold at that time is undetermined.
Property ownership transferred (1997). Estimated selling price today, $325,000.

 

[Zigner]

What was the nature of the "transfer"?

 

[Lot249]

I'm not sure. My mother, sister and myself went to my mother's attorney to document the transfer. The document was written and witnessed our signatures. The document describes the transfer of ownership from my mother to my sister and myself. There is language that gives our mother "life benefits" to the home and is required to maintain the property as she has been.

 

[davew9128]

You need a tax professional to review both the transfer and case law to see how it should be treated. It could a couple of different ways based on the totality of the facts.

 

[Taxing Matters]

I'm not sure. My mother, sister and myself went to my mother's attorney to document the transfer. The document was written and witnessed our signatures. The document describes the transfer of ownership from my mother to my sister and myself. There is language that gives our mother "life benefits" to the home and is required to maintain the property as she has been.

I'm assuming that you and your sister paid nothing to your mother to get the remainder interest that she apparently transferred to you. If that is the case, then that transfer is a gift to you and your sister. In that case, the basis in the home would be what your mother paid for it back when she bought it, with adjustments to that basis for improvements to the home, any depreciation taken, etc. The basis would not have changed because of that gift transfer. So that basis is what will be used to determine the gain or loss on the sale. The issue would be how much of that basis is allocated to you and your sister's remainder interest and how much is allocated to your mother's life estate. I agree with davew9128 that it would be a good idea to consult a tax lawyer or other tax professional for advice. The lawyer may be the best choice because to really get this right involves a review of the legal documents involved, something that other tax professionals are really not authorized or equipped to do.