Tax Issues When Selling a Gift

by Kenneth Hoffman in

Receiving a gift is not a taxable event to the one who receives the gift.  If the gift is large enough, it could result in gift tax being paid by the donor.

In any case, except for certain gifts or inheritances from foreign sources, you are not to report any gifts you receive to the IRS.  This is true whether the gift is in cash or a gift of property.

When you sell the gifted property, you have a whole new story.  Your basis (cost) in the property is the same as it was in the hands of the donor.  You are considered to have owned the property for as long as the donor owned it, and you also take the donor's cost.  This is true for gifts made while the donor is alive.  Property received from an estate is treated differently.

So how does this work on your tax return?  Let's assume that you received a piece of real estate from your mother three months ago, and the real estate has a current value of $100,000.  We will further assume that your mother owned the property for twenty years and had paid $30,000 for it.

If you sell the property this year for $100,000, you will have a long-term capital gain of $70,000 ($100,000 minus your mother's cost of $30,000).  You get the favorable long-term capital gain treatment because you are deemed to have owned the property for twenty years.

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Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. As a trusted senior advisor and counselor working closely with Entrepreneurs, Professionals and Select Individuals, Mr. Hoffman provides counsel to his clients who are navigating through the complexity of today's business, tax, and accounting challenges.

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