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FAQ: Sale of Property

Question: What is the basis of property received as a gift?

Answer:

To figure the basis of property you receive as a gift, you must know 3 amounts:

  • The adjusted basis to the donor just before it was given to you.
  • The fair market value (FMV) at the time it was given to you.
  • The amount of any gift tax paid.

If the FMV of the property at the time of the gift is less than the donor’s adjusted basis, your basis depends on whether you have again or loss when you dispose of the property.

  • Your basis for figuring a gain is the same as the donor’s adjusted basis, plus or minus any required adjustments to basis while you held the property.
  • Your basis for figuring a loss is the FMV of the property when you received the gift, plus or minus any required adjustments to basis while you held the property.

NOTE:  If you use the donor’s adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither a gain nor loss on the sale or disposition of the property.

If the FMV is equal to or greater than the donor’s adjusted basis, your basis is the donor’s adjusted basis at the time you received the gift. If you received a gift after 1976, increase your basis by the part of the gift tax paid on it that is due to the net increase in value of the gift.  Also, for figuring gain or loss, you must increase or decrease your basis by any required adjustments to basis while you held the property.

Question: I sold my principal residence this year. What form do I need to file?

Answer:

You may qualify to exclude from your income all or part of any gain from the sale of your main home if during the 5-year period ending on the date of the sale you meet the ownership and use tests described below and in Publication 523Selling Your Home.

  • You owned the property for at least 2 years; the 2- year period need not be continuous (the ownership test).
  • You must have lived in the property as your principal residence for at least 2 years; the 2- year period need not be continuous (the use test).
  • During the 2-year period ending on the date of sale, you did not exclude gain from the sale of another principal residence.

If you owned and lived in the property as your principal residence for less than 2 years, you may still be able to claim a reduced exclusion.

NOTE:  If you (or your spouse) were on qualified official extended duty as a member of  the U.S. Armed Services or U.S. Foreign Service, as an employee of the intelligence community, or as an employee or volunteer of the Peace Corps, you may elect to suspend the five-year test period for up to 10 years. You may use this provision for only one property at a time.  Qualified official extended duty is any extended duty while serving at a duty station at least 50 miles from the property or while residing under Government orders in Government quarters.  Extended duty is any period of active duty following a call or order to duty,  if the duty lasts for more than 90 days or for an indefinite period.