Will I be required to pay capital gain tax on a property that i was quit claim deeded with right of survivorship and listed as joint tenant. How do I determine amount.

Forum|Forum|11 months ago
April 17, 2025
2 replies
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I was added to the deed in 2019 - market value of property was $97,000. Grandfather passed away in 2025 - home is being sold for $120,000. I'm trying to determine how much I will be required to pay for Capital Gains Tax. I will fall into the 15% bracket for capital Gains.

SharonD007

You may not have to pay taxes on the profits (up to $250,000 or $500,000 if MFJ) if you meet certain conditions.

The three tests that you must meet are:

Ownership - You must have owned your home for at least two of the five years before you sell your home.
Use - You must have used your home as a personal residence for at least two of the five years prior to the date that you sell your home.
Timing - You can't exclude the gain of another principal residence that you sold within two years of the current sale.

If you meet these requirements, you don't have to pay taxes on the first $250,000 (500,000 if you are married and file a joint tax return). If your profit is more than $250,000 ($500,000 if MFJ) then, the excess is reported on Schedule D as a capital gain.

For additional information, refer to the TurboTax article Tax Aspects of Home Ownership: Selling a Home and the IRS article Topic no. 701, Sale of your home.

If the house isn't your main home, you will pay capital gains tax on the profit. You will subtract the adjusted basis from the selling price to get your profit. You can calculate the adjusted cost basis by adding capital improvements made to the home plus the selling expenses to the basis.

Refer to the TurboTax article Cost Basis: Tracking Your Tax Basis and Where do I enter the sale of a second home, an inherited home, or land on my 2024 taxes? for more information.

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rjs

Your situation is very complicated. More facts are needed.

Was your grandfather the sole owner of the home prior to adding you to the deed?
Did you pay anything to your grandfather when he added you to the deed?
When you grandfather added you to the deed, did he pay any gift tax?
How did your grandfather acquire the home? If he purchased it, did he purchase it alone, or did he purchase it together with someone else (such as your grandmother)? If he previously owned the home jointly with your grandmother, how did your grandfather become the sole owner? Did they get divorced? Did your grandfather inherit your grandmother's half of the house when she passed?
SharonD007 is thinking that you lived in the home as your primary home at some point, but you didn't say that. Did you live in the home at any time? If so, from when to when?

There might be additional questions that I haven't thought of. You will need to know the market value of the home on the date that you grandfather passed. (The value when he added you to the deed probably doesn't matter.) Your answers to the questions above will determine what other information you will need.

Randall4817Author

Yes, my grandfather was the sole owner. My grandmother passed in 2014. Prior to that they were both on the property. He became sole owner upon her passing, I'm going to assume, because it was only him and me on the QC.

I did not pay anything to my grandfather, and it's notated in the quitclaim that, "For and in consideration of love and affection and other good and valuable consideration..."

I do not know if he paid gift tax. Where would I find that out?

He purchased the property with my grandmother in 1988 for $20,000.

I have never lived in the home.

I hope this helps. Please let me know how else I can better explain the situation.

rjs

Your grandfather would not have paid any gift tax when he gifted half ownership of the home to you, unless the total of all gifts that he made in his lifetime was more than $11 million. Unless you think he was in a position to make such large gifts we'll assume he did not pay any gift tax.

Since you never lived in the home, you are not eligible for the Section 121 exclusion of gain. That's the $250,000 or $500,000 that SharonD007 was talking about.

I neglected to ask what state your grandparents lived in. I'll assume it is not a community property state. If it is a community property state, the discussion of your grandfather's basis below has to be modified.

Your taxable capital gain on the sale is the amount you sell the home for, minus your basis. Here's where it gets complicated. You received half of the home as a gift in 2019, and you inherited the other half in 2025. Your basis for the inherited half is relatively easy to determine. It's half of the fair market value of the home on the date that your grandfather died (not the date that he put you on the deed). If you sell it within a short time after he passed, you could probably assume that the value didn't change between his passing and the sale, so your basis for the inherited half would be half of the selling price.

It's the other half that's complicated. Since it was a gift, your basis is half of what your grandfather's basis was. But his basis has two halves. His basis for his original half of the home is what he paid for it, which would be $10,000, plus half the cost of any improvements that he and your grandmother made before she passed, and the full cost of any improvements that he made after she passed. When your grandmother passed, your grandfather got "stepped up basis" on her half the home. That means that his basis on her half was half of the fair market value on the date that your grandmother died.

Your entire capital gain will be long-term, even though you only owned your grandfather's half of the home for a few months. Capital gain from the sale of inherited property is always treated as long-term, no matter how long you actually owned it.

You might want to consult a tax professional for help figuring all of this out.