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Old 01-21-2013, 10:57 AM
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Question Sale of Non residence

Elderly parent quit claimed his residence to child because of poor health but stayed in residence for several years-eventually went to nursing home becuse of Alzheimers and other conditions. Has since died. Residence was sold and child received a 1099-S. How is cost basis determined and how does child report this to the IRS? There were real estate commission and attorney's fees during the sale. 1099-S was for 45,000.



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Old 01-21-2013, 10:02 PM
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“Residence was sold and child received a 1099-S. How is cost basis determined and how does child report this to the IRS?”===> Tax basis of property received by the child by gift is the donor's tax basis of the property. If the FMV of the property exceeded this tax basis and the donor paid gift tax, the tax basis is increased by the gift tax. This adjustment applies only if the recipient sells the property at a gain. If the FMV of the property at the time of the gift was less than the donor's adjusted basis(FMV<Adjusted basis), then, your basis for GAIN on its sale or other disposition is the same as the donor's adjusted basis, plus or minus any required adjustments to basis during the period you held the property. A different rule applies if you sell gifted property at a loss. If the FMV of the property at the time of the gift was less than the donor's adjusted basis(FMV<Adjusted basis), then,your basis for LOSS on its sale or other disposition is its FMV at the time of the gift, plus or minus any required adjustments to basis during the period you held the property. In other words, for purposes of determining losses, you use the lesser of the donor's adjusted basis or the FMV at the time of the gift as your basis.

For example, your father gives you XYZ stock today that is currently worth $200. At the time of the gift, he has an adjusted tax basis in the stock of $500. After receiving the stock, you immediately sell it for $200. You do not recognize a loss because your basis in the stock was its FMV at the time of the gift, $200. If you sell it for $300 then,your basis is $200(as $200<$500) and your gain is $100;if you sell it for $1K then your basis is $500 and yur gain is $500.

“ There were real estate commission and attorney's fees during the sale. 1099-S was for 45,000.”=====>Both r./e commission and attorney’s fees need to be added to the basis of the residence.



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