How will I be taxed on the residence interest my mother gave me?

September 13, 2006

From:  Anonymous
Date:  Sat, 01 Apr 2006

My mother added me as a joint owner of her home. I have been advised that when I sell the home after her death, I will be taxed on capital gains above the original purchase price in 1956. How can we change this situation?

Answer

Date:  Fri, 05 May 2006

Hello,

I suggest that you and your mother consult with an attorney that specializes in estate planning.

When your mother added you as a joint tenant, she made a taxable gift that should be reported on a gift tax return.

I believe the advice you received was in error, but it's not wholly good news. Since you acquired your interest in the property as a gift from your mother, the entire property is includable in her taxable estate, to be reported on her estate tax return, if one is required. (Internal Revenue Code Section 2040(a).

Since the property is includable in your mother's taxable estate, the tax basis will be adjusted to the fair market value of the property on her date of death or the alternate valuation date. (Internal Revenue Code Section 1014(b)(9).)

You should help your mother get the facts about her estate tax situation, or discuss the matter with her lawyer or tax advisor. It may be the situation isn't as bad as it appears to be.

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.



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