Now worth approx $700,00-$900,00. My Mother is 95, what will be the Capital gains tax when I have to sell the property either before she passes or after? Thank You, Giftlady

IF she sells it now.. she owes a whopper of a Capital gains... but if you inherit it, you do that at today's value. Called the stepped up basis.. and if you sell you don't have nearly as much capital gains oweed. If she simply deeded it to you you would get it at HER basis which would have a whopper of a tax owed. That's why its better to inherit something in most cases.

.... If she simply deeded it to you you would get it at HER basis which would have a whopper of a tax owed. Thats why its better to inherit something in most cases.

Except that the lifetime gifting limit is $1,000,000, so even at today's value there would be no tax, unless she has previously given more than $100,000 to OP.


... what will be the Capital gains tax when I have to sell the property either before she passes or after?
If you inherit it, the tax, if any, will be due (payable by her estate) when you get the property, not when you sell it.

Now would definitely be the time to consult with a tax and estate planning professional. Do not wait until she is dead.

Except that the lifetime gifting limit is $1,000,000, so even at today's value there would be no tax, unless she has previously given more than $100,000 to OP.


The tax, if any, will be due when you get the property, not when you sell it.

True... but there are PER year gifting limits as well... not just cumulative ones. Can get yourself into a lot of trouble done incorrectly. IRS rules change frequently.

**EDIT** - note that for property inherited in 2010 the cost bass is the original deceased's cost basis - the basis is not "stepped up" in 2010 as it was in prior years, and will be again starting in 2011.**

I think you guys are talking about two different things. Here are the various scenarios and the tax consequences:

1. The mother keeps the house for now, passes it through her estate when she she dies, and the heirs then sell the property. Estate tax: depending on the rules in place when she dies and the value of the mother's other assets there may not be any estate tax due. But it's impossible to say without (a) knowing what the mother's other assets are, and (b) having a crystal ball to know what the rules will be when she dies. If she dies in 2010 there would be no estate tax due at all, but when the heirs sell the property there would owe a significant capital gains tax since they would have to use the mother's original cost basis. If she dies in 2011 or later under the current rules the estate would owe tax only if her total assets are in excess of $1M, and then the tax rate is 55% on the excess over $1M. As for capital gains if she dies in 2011 or later - since the cost basis for the property would be "stepped up" to fair market value as of the date of death, the only capital gains owed is the difference between the selling price and the value as of the date of the mother's death. This will probably be close to $0.

2. The mother gives the property to her children, who then sell. Gift tax: because of the lifetime exclusion of $1M there is probably no gift tax due, although this gift could affect how estate taxes are calculated on the rest of her assets when she dies. Capital gains: the children start with a cost basis of $34K, so when they sell they are facing a capital gains tax of 15% on $800K or so, or about $120K. In 2011 the capital gains rate goes up to 20%, so figure $160K if sold in 2011 or later.

3. The mother sells the house herself. The capital gains will be figured on the $800K gain minus the $250 excluson from capital gains for the sale of a principal residence. I am assuming that she is a widow and files as single. Figure taxes of about $100K if sold in 2010 and $130K if sold in 2011 or later.

In any event, given that the mother has close to $1M of assets in the house alone, and assuming she may have other assets as well, it is highly recommended that she consult with a professional who can review the scenarios in depth.

Thank You to everyone. This was a huge help.. Greatly appreciated... Giftlady

I edited my earlier response to make it clear that the cost basis for property inherited from someone who dies in 2010 is the same as the decedant's cost basis. This is an unfortunate side effect of the estate tax being eliminated for 2010. Ironically, eliminating the estate tax for 2010 actually increases taxes for many people, as the capital gains tax will effect far more people than the estate tax ever did. In 2011 the rules revert back to the way they were before - the cost basis for inherited property is the fair market value as of the date of the decedant's death.

Thank You, I was a bit confused. Thankfully my Mother is healthy and whatever whenever happens it should happen in 2011 or after is what you are saying... Does this revert back each year or will it stay the same after 2011?

Giftlady - please use the "Answer this question" button rather than the comment feature to post follow-up qustoins. You asked:

"Does this revert back each year or will it stay the same after 2011?"

When Congres passsed the changes in estate taxes back in 2002 they made it so that each year up until 2009 the tax rate went down a bit (it used to be 55%, but by 2009 was lowered to 45%), and also raised the amount that is exempted from estate tax - it used to $1million, but was raised through a series of steps over the years to $3 million. That was what we had in place for 2009. That same law also made it so that for 2010 the estate tax is temporarily eliminated - so no one pays estate tax, no matter the size of the estate, if hey die in 2010. (As a consequence there is no "step up" of cost basis for proiperty you inherir in 2010). And then in 2011 the old rules come back just as they were back in 2002 - meaning a $1 million exemption and 55% tax rate. It is an absolutley crazy system, which everyone expected Congress would "fix" before 2010 came around. But Washington being the way it is, with too few grown ups in Congress, they just let it be. So in 2011 we will go back to the old ways. But stay tuned - depending on what happens in the November elections we may get back to a $3million exemption and 45% tax rate.