Our mother, who is still alive, transferred the deed of her house to her children in 2006. We are now selling the home. Will we be taxed on the proceeds?
Because your mom gave you and your siblings the house during her lifetime, you will have to use her basis -- what she paid for the house plus any improvements she made -- to calculate the gain. So if she bought the house in 1970 for $50,000 and made $25,000 in improvements, and you net $600,000 on the sale, then the $525,000 difference could be taxable.
Had she left you the house in her will, the tax implications would be quite different. The cost basis of an inherited property is based on the fair-market value of the home at the time of death -- which would probably be much higher, resulting in a smaller taxable gain.
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However, if a house is your primary residence and you live in it for at least two out of the five years before you sell it, you may be able to exclude up to $250,000 in gains from taxes if you are single or up to $500,000 if you are married filing a joint return.
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