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My parents gave me and my siblings their house years ago and officially had our names put on house. We are in the process of selling the house which is located in the state of NY. Our lawyer just notified me that I owe a capital gains tax upon closing because I am out of state. Is this correct? Since the house was a gift, I thought I did not have to pay a capital gains tax.
ANSWER
Expert Barbara Blacklidge's Answer:
Paying capital gains tax has nothing to do with you being out of state.
Since you received the property as a gift, you need to know the fair market value at the time of the gift. If the FMV at the time of the gift is less than the donors' (your parents') adjusted basis (what they paid plus any improvements), your basis depends on whether you have a gain or loss when you sell the property.
If the FMV of the property is equal to or greater than the donors' adjusted basis, your basis is the donors' adjusted basis at the time you received the gift.
You will pay tax on the difference between your parents's adjusted basis and the selling price minus real estate commissions and closing costs.
For example, if your parents' adjusted basis is $100,000 and you sold the property for $150,000 but paid real estate commissions and closing costs of $10,000, the capital gains tax would be based on $40,000. However, that $40,000 gets divided by you and the number of siblings you have, so you will each pay capital gains tax on your portion of the capital gain.
Please let me know if you require further information or clarification.
Thank you and best regards,
Barbara
