Parents sell a home to a child that includes a gift of equity. The parents' basis is $155,000. The sale price is $203,000, with a gift of $48,000 in equity. When the child sells the home, does he use the basis of the parents plus his improvements, or the sale price of $203,000 plus his improvements? The gift of equity was used for the down payment and to reduce the mortgage to 15 years.
Per the sales paperwork (I presume), $203,000 is the documented purchase price of the home bought by the child. That plus what the child has spent in improvements will be the basis of the home.
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Answered by: Jennifer L. Romberger, CPA, EA, is with Long Financial Group Inc. in Blue Bell, Pa.