Taxes on Sale of "Second" Home
In 1995 my Mom & I purchased a condo - for my Mom to live in. I paid the mortgage and taxes. The condo was held in joint tenancy with the right of survivorship. Mom died in Jan 2001. I sold the condo in Apr 2002. I assume the basis is what we paid jointly for the condo in 1995? I own a main home. On the condo for my 2002 return, how do I treat the profit on the condo? Thanks.
Treat the sale of the condo the same as the sale of investment property and apply the long term capital gains tax rate appropriate for your marginal tax bracket.
When your mother died, did you have an appraisal done to establish a value for the property? Since your mother's half of the condo was part of her taxable estate, what value was assigned to the condo at her death?
The reason I am asking is important to you because your mother's half of the condo passes to you at a "stepped up" basis. Example, the condo was purchased in 1995 for $100K and titled jointly between you and your mother. At that point, your basis was $50K and her basis was $50K. When she died six years later, let's say that the value of the condo had risen to $140K. Your mother's half is now worth $70K and passes to you with a basis of $70K. When her basis is added to your basis, you get a cost basis for the entire condo of $120K.
With a sale price of $140K, your potential taxable profit is only $20K in this illustration. Please note that for simplicity, I ignored acquisition costs and selling expenses which would affect your basis.