Message Font: Serif | Sans-Serif
No. of Recommendations: 0
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
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.