Mother and Son on house deed

[sbever]

What is the name of your state? Indiana

My mother has a house in St Louis Missouri. When she moved to a retirement community in Indiana she put my name on the deed with her. The agreement is when she sold the house to her other son the house would be split 3 ways. My portion will be $40,000. My question is how will that affect my taxes? I'm not sure if it would be considered a gift and if so should it be given in portions to avoid gift tax or since my name is also on the deed is it the sale of a house that I don't live in and now taxable income?

Thanks for any help you can provide.

 

[LdiJ]

What is the name of your state? Indiana

My mother has a house in St Louis Missouri. When she moved to a retirement community in Indiana she put my name on the deed with her. The agreement is when she sold the house to her other son the house would be split 3 ways. My portion will be $40,000. My question is how will that affect my taxes? I'm not sure if it would be considered a gift and if so should it be given in portions to avoid gift tax or since my name is also on the deed is it the sale of a house that I don't live in and now taxable income?

Thanks for any help you can provide.

Since it is not your primary residence, and since your mother gifted the ownership to you, you will receive a percentage of her basis that corresponds to your ownership. Basis is what she originally paid for the house, plus any major improvements. The different between net selling price (sales price minus expenses of sale) and basis is your capital gain/loss. You pay tax on your capital gain.

Example:

She bought the house for 50k and made 20k in major improvements for a basis of 70k. The house today is now worth 130k and the net sales proceeds were 120k. So, each of you would have a capital gains transaction on your tax return for 40,000 sales proceeds with 23,333 in basis for a capital gain of 16,667. Most likely your capital gains tax rate is 15% so you would have federal tax of 2,500 on your capital gain. Again, this is just an example. Your numbers will vary.

 

[TigerD]

LdiJ: It isn't my area, but isn't there some sort of tax due on gifts in excess of a specific dollar amount ... something like $10,000? Wouldn't the basis also be taxable since it was a gift?

TD

 

[adjusterjack]

LdiJ: It isn't my area, but isn't there some sort of tax due on gifts in excess of a specific dollar amount ... something like $10,000? Wouldn't the basis also be taxable since it was a gift?

TD

You're thinking of the annual gift tax exclusion within which there is no tax and no need to report the gift. It used to be $10,000 per year per person but now it's up to $15,000. Above that, the gift has to be reported but there is still no tax unless the lifetime total of gifts exceeds $11,180,000 starting in 2018. Used to be half that.

 

[LdiJ]

LdiJ: It isn't my area, but isn't there some sort of tax due on gifts in excess of a specific dollar amount ... something like $10,000? Wouldn't the basis also be taxable since it was a gift?

TD

No, that is incorrect. The receiver of a gift is never subject to gift tax, its the giver who is. Gift tax is only due if someone has exceeding their lifetime gift tax exclusion, and that is running at over 11 million this year. If someone gives total gifts, to a single person of over 15,000 then that triggers a need for the giver to file a gift tax return, but that is only to report gifts towards their lifetime exclusion, not to pay an actual tax.

 

[TigerD]

Thank you both for clarifying that for me.