With regard to the gift tax -- my MIL did so much work to the house prior to her selling it to us that a lot of the tax was offset by her improvements I don't think that means what you think it means.First issue - the taxes on the sale that your mother-in-law owed. She sold the house for more than she bought it for. Since she had less than $250,000 gain, if she had lived in the house for more than 2 years of the five years before selling then she didn't have any capital gains taxes due.Second issue - whether taxes due on the gift of the house. Gifts from one individual to another under $11,000 per year are untaxed. Above that the person giving the gift owes taxes. One can use the inheritance exemption amount up early, but it still needs to be taken care of when the gift is given. (Sorry I'm not being clearer but it's not an area I've dealt with personally so I'm fuzzy on the details.)Your MIL didn't give you the the whole house. But she sold you the house at below market value. The difference between the market value of the house and the price you paid her is a gift -- a $93,000 gift in your case. Your MIL owed gift taxes on the $71,000 she gave to you and your husband when she sold you the house.Third issue - your selling the house now and owing or not owing taxes on it. I think you understand that now, but just a reminder that the profit on your house is $200k - (cost of improvements you did) - $75k. So it will be less than $125k; how much less depends on how expensive the improvements were.- Megan
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