I was not aware at the time, however in 1990 my uncle transferred title of his home to my sister and me. The deed states consideration of $1. My sister has power of attorney with regard to my uncle (now in assisted living). The property was sold in May 2008 for $23,900, of which I received net $11047.63. It was during this event that I learned I was a 50% owner and I had to sign / authorize the sale. My sister received a 1099-S from the attorney (both our names and SS#). My question is about HOW to file this. I do my own taxes using Turbo Tax, but I feel challenged by this situation. Should this be filed on Form 4797…or do I include it on Schedule D? How do I establish a basis? Is it $.50 (50% of the the $1 value on the deed in 1990). Does that make the full amount a taxable gain? Or should I try to estimate an adjusted basis for 1990. I don’t know the Fair Market Value of the property in 1990, but I’m sure I could find historical info to establish it. I wrote to the IRS, but their reply left me confused so I’m hoping some expert can offer helpful direction. thanks!
Your basis is the lower of his basis or the FMV on the date that it was gifted to you. When you receive a gift you receive the donor’s pass-through basis in the property so what he paid for it originally is needed to establish your basis in the property. If the FMV on the date of the gift is less than his basis, you adjust downwards to the FMV.
Unless this was a rental property, you report the sale on Schedule D.
Dear Con: Ardvarks got it right but your basis is the donor basis or FMV as he said and to calculate that you must know what your uncle paid for the property and what improvements he put into it. Obviously you want to get the basis as high as you can so a little homework will pay off. Did he ever put a new roof on the house, new floors, new windows, a new addition etc. As a 50% owner you will use 50% of the basis on Sch D against the $11048.
This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more. Errol Quinn Enrolled Agent Master Tax Advisor