11 Jul Dad died. What happens with taxes on mom’s house?

Q. My mother is 87 and has lived in the family home for 59 years. Mom has some health issues that call for her to need someone caring for her. My dad passed away in 2019. About seven years before my father passed away, my parents’ estate was protected from the State of New Jersey through an elder lawyer who added my sister and myself to the deed. My question is what capital gains would Mom be responsible if she sells the house because of health reasons? Also, I’m 64 and I have power of attorney for my mom.
— Trying to help

A. We’re glad to hear you’re making sure your mom has the care she needs.

First, you said your name and your sisters name were added to the deed.

“Unless there was a gift tax return filed perfecting the gift of the shares of the house, it would be deemed to be for the convenience of the mother,” said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

Also, he said, we would need to know how the property was deeded. For example, was it joint with right of survivorship or tenancy in common?

Karu said New Jersey follows the federal guidelines for the sale of a personal residence.

For singles, the first $250,000 of profit is exempt, he said. So is the basis in the home.

To calculate the basis, you would start with 50% of the original cost basis plus 50% of all improvements done on the house through your dad’s date of death, he said.

That 50% is increased by 50% of the value at your dad’s date of death, he said. Then add the cost of any improvements made after his date of death.

That would be the cost basis.

He offered this example.

Assume the net selling price, after commissions and other costs, is $500,000. Also assume the original cost was $50,000 and improvements prior to your dad’s date of death were $100,000 and none were done afterwards.

“The basis to your mother would be 50% of the $150,000 or $75,000 plus 50% of the value at his date of death,” he said. “Assume that value in 2019 was $350,000. So another $175,000 is added to the basis.”

That brings the total basis to $250,000, he said.

“Subtract that from the net selling price and you get $250,000. That equals the exclusion, so everything would be exempt,” he said.

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This story was originally published on July 11, 2023.

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