My name is on the deed with my mother's for her house. If she removes her name, and I sell it for $200,000, and then invest the money, will I have to pay capital gains because I never lived in this house? I would like to sell it alone, because if she shows the sale on her federal return, she will have to give up her VA widow's benefit which helps pay for her assisted living expenses.

ANSWER

The BIDaWIZ Team's Answer:

If she gives it to you, it is technically a gift. Although you likely won't owe any gift taxes because the federal and state exemptions are currently $5.12 million, when she gifts you the property, you maintain the original basis which is $35,000 plus any renovation costs. If you sell it for $200,000 now as opposed to waiting until you meet the capital gains exclusion, you would owe capital gains taxes. Specifically, long-term capital gain rates are 15% right now, so the gain would be $200K - $35K = $165,000 gain or a $24,750 tax. Another way to avoid this, is if she sells it herself she can claim the capital gains exclusion which is $250,000 and wouldn't have to pay any of the capital gains taxes. Please note that if you inherit the property, you maintain the basis at the time of death. For instance, if the FMV of the property at the time of death is $200,000, that is your basis.