Subject:  tax question
From:  Cindy
Date:  Mon, 19 Aug 2002

Hi, I have owned a condo now for one year and my parents switched the deed over to me. They put $100,000 as the sale price, although I didn't put one penny into it. They are gifting me $20,000 per year for a write off of their own.

Now I want to sell it for $150,000. Am I gonna have to pay capital gains tax?

Cindy

Answer

Date:  30 Aug 2002

Hello Cindy,

Since you never made any payments, there is a potential issue about whether there was a sale or gift of the condo. If the transfer was a gift, your tax basis is the same as your parents'. If the transfer was a sale, your tax basis is $100,000. Based on the "sale" assumption, you would report a capital gain of $50,000 if you sold the condo now.

Remember, though, that you can exclude up to $250,000 from the sale of a principal residence provided you have used it as a principal residence for more than two years when the property is sold. I suggest you continue to live in the condo and use it as your principal residence until you meet the "more than two years" requirement before you sell it. The issue of "gift" vs. "sale" will be eliminated since the sales price is expected to be less than $250,000.

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.