My mother died in September 2006. My mom owed a mere $2,xxx on the house, so my sister and I paid it off and the house was placed in our names, owning it outright.

My sister and I were going to sell the house, but with work and school we were both very busy. When ready to finally sell it in the spring of 2008, my sister expressed interest in taking a mortgage for my half of the houses value (basically buying out my half).

The county appraised the house at around $200k, give or take at the time (I don't recall but it was around that) we were looking to sell the house.

My sister took a mortgage for half, and after all was said and done with the realtor I walked away with a check for $96,500. I now need to pay taxes on this. The state is Minnesota.

How much can I expect to owe on this, or do I owe anything on it at all given the odd situation?

The amount of taxes you owe depends upon the fair market value of the house when you inherited it. Any gain between your net of $96.5K and your half of the FMV is taxable as a capital gain. So you need an estimate of what the FMV was in September 2006. Divide that by 2 to get your cost basis. If there is a gain you report it on Schedule D. But given what's happened to housing prices in the past 2 years, you may actually have a loss on this property. Unfortunately if it is a loss you can not deduct it.

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Originally Posted by ebaines

The amount of taxes you owe depends upon the fair market value of the house when you inherited it. Any gain between your net of $96.5K and your half of the FMV is taxable as a capital gain. So you need an estimate of what the FMV was in September 2006. Divide that by 2 to get your cost basis. If there is a gain you report it on Schedule D. But given what's happened to housing prices in the past 2 years, you may actually have a loss on this property. Unfortunately if it is a loss you can not deduct it.

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OK, thanks. The estimate of the FMV should be somewhere on the 2007 (?) property taxes, correct?

Also given the poor housing situation, I'm thinking it will either be a very small amount of taxes (a couple thousand dollars maybe?) or possibly even a loss. In the event of a loss, I would have course owe no taxes on the house sale, correct?

Thanks.

As ebaines said, the only tax liability you have is if the sale price is greater than the fair market value when your mom died.

FMV is different from assessed value that might be listed on tax bills. You need to get an appraiser to give you the FMV as of your mom's date of death.

Also if you owned the house for two years and lived in it for two years in last 5 years, then you can exclude a gain on up to $250,000. Read: Your U.S. Tax Return: Profit From the Sale of Your Home

All right, thanks.

So just to make sure, the assessed value is the raw property value that the county/state assigns to the property and sends out on tax forms, whereas the FMV is the actual appraised value that takes into account property condition, household upgrades, etc.

We did have the house appraised last spring before selling it; how would we go about getting the FMV for two years ago?

Go back to the appraiser and ask for an appraisal as of the date of death.

OK, as I live abroad my sister is going to talk to the appraiser tomorrow.

One other little mess I had forgotten about. The spring 2008 appraisal showed a value of $218,500. The house was sold to my sister for half of that, $109,250.

The reason I walked away with a check for $96,500 when all was said and done is because my dad had a marital lien against my mom from a divorce for $25,000, which my sister and I split the burden of at $12,500 each. This $25,000 was worked into the home sale, as the realtor cut me a check for $96,500 and my dad a check for $25,000.

Based on that, when I go to calculate capital gain/loss, do I use the net $96,500 after the marital lien was legally figured into the house sale or the original $109,250? I ask since the $25k for my dad was factored into the home sale itself before my net check had been cut.

Thanks, this is all new to me and pretty messy.

You are right, it WAS messy.

If you have filed and showed NO or only a small capital gain, then you are okay. Otherwise, you may need to amend the return to fix it, because, based on your post, you showed NO capital gain at all and therefore should have paid NO taxes on the sale to your sister.