Do I have to pay income tax on the sale of a home my mom transferred to me before passing away?

by William L. Stunkel, CPA | Jan 21, 2019

My mom transferred her house to me one year ago. She passed away in October, and I am selling it for $145,000. Do I have to pay any income tax?

The amount of any income tax owed is a matter whether your situation fits one of two fact patterns.

  1. If you lived in the house as your personal residence, you may be able to exclude a portion of the gain based on having lived in and owned the house for one year out of the past five years. IRS Publication 523 details how to calculate the partial capital gain exclusion. Any amount not eligible for a gain exclusion would be subject to income taxes that you would be responsible for paying.
  2. If you did not live in the house as your personal residence, you would have to pay income tax if there is a gain on the sale of the property. The calculation to determine whether the sale resulted in a gain or loss is as follows: The total of the sales price less the amount of any selling expenses (i.e., real estate commissions, transfer taxes, etc.) and less the amount of basis you have in the property.  Sale Price – Basis = Gain ( or Loss) on sale.

Because the property was transferred from your late mother, your basis would be the total of the following factors:

  • Her basis (most likely what she originally paid for the property or the fair market value at the time she inherited it if it was not purchased by her), plus
  • The cost of any improvements she made to the property while she owned it, plus
  • Any amounts paid to facilitate the transfer from her to you (such as an attorney or transfer taxes), plus
  • The costs for any improvements you may have made to the property prior to selling it.

A CPA can assist you with making sure you are including all applicable facts when determining the taxable amount of the sale and with capturing all eligible costs to include in your basis calculation.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: William L. Stunkel, CPA, is director of small business services with Holsinger PC in Wexford, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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