Tax Question - Sale of Condo

In My Humble Opinion
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This is my first thread! My mother died in September of 2011. She lived in a condo for many years before her death. In March of 2012, her daughters, of which I am one, sold the condo and the proceeds were split between us.

Unfortunately, she was advised years before her death (stupidly, I know) :smack: to put her daughters’ names on the deed. We were not on the mortgage. I live in Maryland. What are the tax ramifications of this sale for me? Will there be a tax document sent to me this year? Also, it looks as though we paid Maryland taxes on the proceeds at settlement. Does that mean I won’t owe Maryland taxes on these gains?

Sorry to have such a boring first thread! I know no one can actually provide tax advice for me but I would appreciate any help. Many thanks for your thoughts!

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Legal advice is best suited to IMHO.

Colibri
General Questions Moderator

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Sorry! Thanks for moving it. Darn, a boo-boo right off the bat!

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It was not necessarily bad advice to put your names on the deed, but it does change how the taxes are calculated. The names on the mortgage are virtually irrelevant to tax issues.

Since you were put on the deed before death, you have an investment property. You’ll need to figure out your cost-basis for the property, using the rules for a gift from a related party. The rules will give you a different basis depending on the circumstances at the time of the gift. (see Publication 551 (12/2022), Basis of Assets | Internal Revenue Service). Calculating the donor’s basis may require some kind of retroactive appraisal (thankfully, sites like Zillow can probably put you in the ballpark), and you’ll need to do some research to find your mother’s basis (basically, what she paid to buy and improve the home).

The basis will be allocated to each of the people on the deed based on their percentage ownership, as will the sale proceeds. Your final taxable gain or loss will be the proceeds, less costs of sale, less basis. (Note: the taxable gain or loss on the sale does not depend on the mortgage amount unless the lender forgave a portion of the loan in a short sale type transaction.)

If the property is in a state with an income tax, you’ll probably need to file a return there, but it does depend on the state. I don’t know Maryland well enough, but I do know that California would require a return if the property had been located there.

It is probably not a DIY project to do this return yourself. I wouldn’t even take it to one of the big tax chains. I would encourage you to find a tax professional in your area with an EA or CPA designation.

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Thanks so very much for this information. I really appreciate your taking the time out of your weekend to answer me in such detail!

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Glad to be of help!

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From what I’ve read in real estate columns, the issue from a sales perspective is that you’ve basically gotten her basis in the property.

Say she spent 100,000 on the condo, and put another 20,000 in improvements. If the condo sold for anything over 120,000. the difference would be a capital gain (and therefore taxable).

I don’t know why a retroactive appraisal would be needed, but you can probably find out her purchase cost - either from her original paperwork, or the taxing authority where the condo was located (our county has all sales history). And of course you’d need to dig through her records to find out improvements as Dracoi said.

There are exclusions to what is taxable, provided you lived in the property. For example we sold a townhouse 10+ years ago, and made a lot of money on it - but because it was our principal residence, 500,000 was excluded from capital gains (our profit was nowhere NEAR that, so we paid no tax). I don’t think any of you lived in it, so this wouldn’t apply.

As it seems like you’ve heard, deeding the property to you and your sisters wasn’t the best deal from a tax perspective.

The taxes you paid out of settlement proceeds: I would bet they are not income taxes, but rather a pro-rata share of that year’s property taxes, or other recording fees (but I admit I could be wrong). Check the paperwork. As such, that wouldn’t have anything to do with your income tax. It might be used to reduce your net profit - certainly any real estate commissions would.

From an income tax perspective: you might well need to file a return in the state the estate existed in (you mention Maryland: was that where your mother lived as well?). When we sold my mother’s estate, we had to pay capital gains on some stock she owned and some interest income, to Pennsylvania (where she lived; we lived in another state). We also had to include that income on our Federal return and our home-state return (though the state tax was offset by what we’d paid Pennsylania).

I concur that this one would be worth taking to a real accountant, vs. trying to do it yourself.

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Thanks so much for your imput!

We do live in Maryland, so it won’t be like we have to file in a different state. Unfortunately, it looks as though my mom’s files might not be accessible anymore. One issue I have is that it isn’t all that much money and it wouldn’t be too horrible to just take a hit on the taxes and not have to go through a whole lot to figure out the cost basis, especially since we’re getting a tax refund otherwise. But I wonder if one isn’t really allowed to just claim it without claiming all the cost basis stuff. They may want all the figures set out even if we are willing to take the hit.

I did just make an appointment with a CPA after getting all the advice here. I just wish I could worry about this and not the five other mini-traumas I am dealing with right now!

Again, thanks to everyone. I am thrilled to have some answers!

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I’m not a tax accountant by any means, so take this for what it’s worth: I can’t imagine them having any issue with you not claiming the full cost basis, especially since it means more taxes for them!!

You should try to at least find the original purchase price, however. If you were to get audited, they could conceivably say “prove it cost 100,000 - I bet it was really 50,000 and you’re a cheater”. That information should be available from the property tax records, I would think.

As for the rest of it (the 20,000 in my example) - yeah, if you can’t find records easily, it may not be worth the hassle. If you had reason to believe it was 100,000 (or whatever) then it might be more worthwhile.

In any case - I don’t know how long ago it was put in your names, so that might impact long/term capital gains, and it’s definitely worth talking to a pro.

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A very helpful person on this board taught me that a crazy amount of information related to real estate is online. You need to look for the Registry of Deeds for the county in which the house is. I’m told that not every county has their info online, but if it does, BINGO, you should be able to find the purchase price without even leaving your house.

For example, in my county, I can search based on my own name and get all the documents filed with the registry of deeds that pertain to me. One includes the purchase of my house and the price is on that document.

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God, I love this place. You dah board, SDMB! Merci, danka, gracias.