In 2003, a close relative had 2 acres and sells half to me. In 2013 this relative gifts me their remaining interest in the property and I sell 1.5 acres of the property and keep the rest. How do I determine the capital gains if I owned half the property since 2003 (long term capital gains) and I was gifted the other half (short term capital gains) before I sold the 1.5 acres? I'm in the 15% tax bracket.

ANSWER

The BIDaWIZ Team's Answer:

If you're in the 15% tax bracket, you should not owe any taxes as the character of the property should be considered a long-term capital asset. Specifically, if you owned the land for a year or longer, then it is taxable as a long-term capital gain. In addition, when you receive a gift and your basis is the donor's basis, then your holding period is the same as your relatives. This means that the ENTIRE sale should be treated as a long-term capital gain. Again, since your in the 15% tax bracket, you should not owe any tax. This is referenced in Internal Revenue Code Section 1222(3) and IRS Publication 544.