[krobshopper]

My grandmother purchased house in 1923 for $13,000 - when she was ill in 2006, she transferred the ownership of the property to both me and her as joint tenants (the property was valued at $600,000 at the time) She passed away in 2007 - I sold the house in 2008 for $600,000 to my nephew, but I gifted $200,000 to him so that he could buy the house - how do I figure out my cost basis and where on the tax return does it get reported? I've researched several different areas, but keep getting different answers. Thank you!!

[ebaines]

I think it goes like this:

Your grandmother made a gift to you of $300K back in 2006 - I trust that when she passed away her executor followed through on the gift tax implications of this transaction - but that's a different discussion. Your cost basis for this is 1/2 of her original cost basis, or $6,500.

In 2007 when she passed away you inherited the other half of the property. Do you have an estimate of the fair market value as of her dayrte of death? Again, this is something the executor of the estate should know. For discussion purposes, let's assume it's value was $600k. So you inherited $300K worth of real estate from your grandmother, with a cost basis to you of $300K.

So at that point you were the sole owner of a house with a cost basis to you of $306,500.

In 2008 you sold the house for $600K, for a gain of $293,500. You report this as a gain on Schedule D of your 1040.

You also made a gift of $200K to your nephew, but that's not relevant to the discussion of what your cost basis is. However, you should be aware that you must file form 709 (Gift tax) with your return. You probably don't owe any additional tax because of this gift, but the gift does count against your lifetime exclusion for estate accounting purposes.

[IntlTax]

I am not too familiar with the estate tax rules. However, I believe that you may be able to obtain a step up in basis for the entire property (to $600,000) if your grandmother lived in the house until her dead. See section 2036.