Q: Question about capital gains tax on home sale?
Hi, I'm in a confusing situation that I hope you can help me with. I just sold my house last month and I'm trying to figure out if I qualify for the $250k capital gains exemption for a single tax payer. Now I should qualify since I lived in this house for a decade. The situation here is my mom was in a nursing home and did a quitclaim deed with me to transfer the house. I've read that because of the quitclaim I would have to pay capital gains on what my mom paid for the house, but she inherited it from my grandmother. So it's all a little confusing. Does me being in the house a decade supersede this quitclaim issue? I should qualify for the exemption since I lived there over 2 years, correct?
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A:
The capital gains exemption you're referring to—$250,000 for a single taxpayer—generally applies if you have owned and lived in the home for at least two of the last five years before selling it. Since you've lived in the house for a decade, you likely meet the residency requirement. However, the quitclaim deed from your mother might complicate things, especially when it comes to the calculation of capital gains.
When your mother transferred the property to you via quitclaim, your cost basis for the home typically becomes what your mother's was, which could be her original purchase price or the value at the time she inherited it from your grandmother. If this amount is significantly lower than the sale price, your capital gains could be higher than expected, even though you lived there for over two years.
Since you've met the residency requirement, you may still qualify for the exemption. However, the capital gains tax would likely be calculated based on the original cost basis from when your mother or grandmother acquired the home, not the value at the time the quitclaim deed was executed. It would be a good idea to confirm this cost basis and consult a tax advisor to understand your specific tax liability.
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