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Question for the Money Doctors

Question submitted on Feb 16, 2013.

Question

house and 10 acres being purchased by one of the part owners. the site is owned half by deceased fathers trust and the other half by his three adult children who were given an undivided 1/3 interest in the living mothers half share. One of the 1/3 owners is going to purchase the site. What if any are the capital gains tax and personal tax problems. This sale and gift are recent both within the past year. The sale price is about half the assessed tax value and less than the fair market value.

Answer

Several issues present potential problems. First, the sale price being less than the fair market value of the property, this probably involves a gift from the sellers to the buyer. Look out for gift tax return filing requirements. Second, to determine the gain on the sale of the property, its tax "cost basis" to its various owners will need to be determined. This may involve a "step up in basis" (full or partial) when the father died and a transfer of cost basis when the mother gifted to the children. Also, there might be additional complexity if the property has been rented in the past or was acquired through an exchange. Overall, the situation is complex and involves many specific aspects. So, the persons involved (including the trustee for the father''s trust) will benefit from personalized professional legal and tax advice.


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