Q: My wife and brother inherited their mothers home upon her death. It was sold 2 months later.
Their mother had put their names on the title many years ago. She controlled the house, paid all the expenses, taxes, insurance, etc. She would never have been forced out of the house by her children. When she died, the house was left to her son and daughter, and it was sold two months later. Question: do they have to pay capital gains taxes on this? My understanding is that if this is viewed as an inheritance, the "stepped up basis" would mean they owe no tax. We are not sure if the fact they were on the title when she died affects this. Practically, this has always been treated that their mother had 100% control of the house and all the associated expenses-- the house was passed down to the two children only upon her death. For tax purposes, is this handled as an inheritance, thus no capital gains tax due? Thanks for any clarification.
A:
That depends on HOW 'their names were on it'. Did your mother in law have a lady-bird deed prepared or did she do a simple quit claim deed to 'avoid probate'? (SO many bad decisions are made to 'avoid probate'!)
Take all the documents to a local real estate and probate attorney and have them review things. A review from a tax specialist may ALSO be needed. Whether or not your mother in law 'acted' like she owned the place and whether or not your wife and her brother 'would never have' done something is irrelevant. What matters is the LEGAL consequences of how this was done.
I sincerely hope your mother in law got legal advice and didn't just print something off the internet and think she was good. It may be too late at this point, but you can at least learn something and not make the same mistakes!
Get that local licensed advice!
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