How much will my brother and I have to pay in capital gains from the sale of our mom's house?

Pencil on income tax form

Q. My brother and I were on the deed to my mother's house when she decided to sell it. We both own the homes we live in. How much will we have to pay in capital gains taxes on this money?

A. Your incomes will determine whether you'll have to pay capital gains on this sale and how much, according to Kelly Phillips Erb, a tax attorney who writes the blog

You'd be exempt from taxes on the increased value of this property if it was your primary residence for two to five years and the profit was less than $250,000 for a single person or $500,000 for a married couple.

Because the house is not your primary residence, you won't be exempt, but you still might not have to pay any taxes.

Right now, the rate on capital tax gains for the 10% to 15% income bracket (taxable income of zero to $33,950 a year if filing single or $67,900 if filing jointly) is zero.

If you're in the 25%, 28% or 35% tax bracket (more than $33,951 if filing single and more than $67,901 if filing jointly), you'll pay 15% of the capital gains on the house.

Erb has one suggestion to minimize any tax you might have to pay: Make sure you calculate the profit using the basis value of the home, not its original purchase price. The basis value is the original purchase price plus any major improvements.

For example: If your mother bought the house for $25,000 and spent $10,000 to add a bedroom on the back, the basis value would be $35,000. If the home sold for $50,000, then the taxable capital gains would be $15,000 using the basis value as opposed to $25,000 using the original purchase price.

Could this potential cost have been avoided?


"What a mother will tend to do is put kids on a property because she assumes that she is going to die first and each will get a share," Phillips Erb says.

But your mother sold the house before she died with you and your brother owning one-third of the house. That makes you in line to get one-third of the profits and legally obligated to pay all the taxes associated with that income.

If you and your brother hadn't been on the deed, your mother could have sold the house, then given each of you part of the profits as a gift to avoid any capital gains tax.

Follow on Twitter.

Leave a Reply

Your email address will not be published. Required fields are marked *