help with basis

[Janitor Bob]

Please follow my line of thinking and tell me if you agree:

Mom & Dad by home in 1978 for cost of $32,300...basis =$16,150 each

Dad dies in 2001....mom's portion of basis remains at $16,150, but other half steps up to half 2001 market value (61,940)...so mom's new basis is $47,120.

Mom transfers ownership equally to her 3 kids...basis for each kid is 1/3 of mom's basis...$15,707

oldest brother buys out the two younger sibling in August 2017 for current Market value....$30,000 each....so the two younger siblings have taxable L/T gain of $14,293.

Or...instead of retaining mom's basis in 2006 when property transferred to kids, do kids use 2006 market value ($72230) as the new basis? 

[Lion EA]

If Mom gifted her property to kids, then kids' basis is mom's basis (+ whatever capital improvements they make after they own it).  Step up/down in basis happens only if kids inherit property.

[Terry D EA]

When reading your post, it does appear that mom gifted the house to the kids. If so, I agree with Lion EA that kids basis is mom's basis. I'm not sure about your calculations for mom's basis. If the house was joint owned at the time of death, why would mom receive a step up in basis? I fail to see how it would be considered an inheritance if it was joint owned.  As I see it, mom's basis is 32,000

[jklcpa]

JB, if the house was held as joint tenants, not community property, then I basically agree with what you have written that I quoted below. Remember that basis of the gift will be donor's basis plus any additional improvements, but would be FMV at time of the gift + improvements if its disposition results in a loss (obviously not the case here since its current value has continued to increase):
 

5 hours ago, Janitor Bob said:

Mom & Dad by home in 1978 for cost of $32,300...basis =$16,150 each

Dad dies in 2001....mom's portion of basis remains at $16,150, but other half steps up to half 2001 market value (61,940)...so mom's new basis is $47,120.

Mom transfers ownership equally to her 3 kids...basis for each kid is 1/3 of mom's basis...$15,707

oldest brother buys out the two younger sibling in August 2017 for current Market value....$30,000 each....so the two younger siblings have taxable L/T gain of $14,293.

 

I also agree with Lion that there could be additional basis in each of the holding periods:

• mom & dad may have made improvements after its purchase in 1978 and before dad's death in 2001 where mom would share in 1/2 of those expenditures,
• mom alone may have made additional improvements between 2001 and the transfer to 3 son's,
• and there could be additional basis if the son's did anything to the house beyond ordinary repairs and upkeep.

[jklcpa]

44 minutes ago, Terry D said:

When reading your post, it does appear that mom gifted the house to the kids. If so, I agree with Lion EA that kids basis is mom's basis. I'm not sure about your calculations for mom's basis. If the house was joint owned at the time of death, why would mom receive a step up in basis? I fail to see how it would be considered an inheritance if it was joint owned.  As I see it, mom's basis is 32,000

Terry, where property is held as joint tenants, the surviving spouse does get a step up or step down of basis for the 1/2 of the property inherited from the deceased, just as JB described. It is different with community property.

 

 

[Janitor Bob]

There were a few improvements prior to 2001 and I have included those in mom's basis.  I was able to pull detailed property value information from our county auditor...that was helpful as they track any improvements as a reason to increase value (and property taxes).