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Can I apply the two-year rule to an inherited property?

February 28, 2006


From:  Susan
Date:  Tue, 31 Jan 2006

My father transferred his home to my sister and me by quit claim deed when our mother passed away in August, 2005. The home is paid for. I would like to sell my share to my sister, leaving her as the sole owner. Would I have to pay taxes on the sale proceeds? Does the two-year rule apply here?

Thank You

Answer

Date:  Mon, 06 Feb 2006

Hello Susan,

The two-year rule only applies when the home is your principal residence. Even if you did live in the residence, itís too soon to qualify, unless you have an "unforeseen circumstance."

Find out from your father what the tax basis for the residence was. At least part of the basis should have been adjusted as of your motherís date of death. Your father might need some help from an accountant or attorney to determine this. It may be the gain is much smaller than you think it is.

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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Can I apply the two-year rule to an inherited property?

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