Tax Tip of the Week
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Be aware of taxes when you sell a gift
For the week of
November 26, 2001
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 due by the donor.
In any case, you are not to report any gifts you receive on your income tax return. 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.
If you or someone you know has questions about tax, business, or financial
matters, please give us a call. We will gladly be of assistance.
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