Fairview Park, OH asked in Tax Law for Ohio

Q: My mother gifted me & my daughter a home in (she is alive) in 2017. When we sell do we have to pay step-up taxes?

My daughter and myself are both the owners, and my daughter holds the mortgage which is mostly paid off. We live in the Ohio.

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1 Lawyer Answer
James L. Arrasmith
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  • Tax Law Lawyer
  • Sacramento, CA

A: Based on the details provided, here are a few key points regarding whether you would need to pay capital gains taxes when you sell the home that was gifted to you and your daughter by your mother in 2017:

- Since this was a gift from your mother, your cost basis in the home would be the same as her cost basis at the time she gifted it to you. This means if she had a low cost basis, you could end up owing capital gains taxes on the difference between that price and the eventual sales price.

- However, you mentioned your daughter holds the mortgage and it is mostly paid off. If your mother gifted you the home but your daughter took out a mortgage to pay your mother for part of the value, your cost basis would be higher and thus your capital gains lower.

- Up to $250,000 in capital gains from the sale of a primary residence is exempt from taxes for a single filer if you meet the ownership and use tests. For married joint filers it is up to $500,000. This could provide a complete exemption on gains depending on the sales price and your cost basis.

- You will want to consult with a local tax professional to review the specifics of your situation before selling, as they can help calculate your exact cost basis, expected capital gains based on current home value, and clarify what capital gains tax exemptions you may qualify for.

The key factors will be confirming your cost basis at time of gift and whether you meet exemption requirements as a primary residence. With a tax professional's help, you can determine your potential tax liability when you do sell.

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