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My father inherited a property as part of an estate after my grandmother passed away. Then maybe a year later he gifted it to me. I've had it longer than a year. How do I calculate the capital gains owed if I sell it and what the cost basis is, etc? I am very confused on how this is calculated.

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Based on this being a United States question:

My father inherited a property as part of an estate after my grandmother passed away.

That means that the value of the property is stepped-up to the current value at the moment of the inheritance. Any tax issues related to the inheritance are handled by the estate, and not by the person who inherits the property.

Then maybe a year later he gifted it to me.

This is a gift. So there are a couple of things.

The value isn't stepped up again. The basis of the property is the value from the inheritance.

Your father may have had to document the value on their tax return. They gave you a gift, and if it was more valuable then the annual gift exemption then they either paid a tax on the gift, or they claimed the gift against their lifetime exclusion. There are ways to bundle the gift to reduce the impact. If you are married, and your dad is married then the annual exemption is essentially quadrupled. But this is their issue not yours.

I've had it longer than a year. How do I calculate the capital gains owed if I sell it and what the cost basis is, etc?

This depends on did you live in it as your personal residence. If you did for two years then some or all of your gains could be tax free. If you didn't have it as your principal residence, or you rented it out, or somebody else lived in it there will be tax on the gains.

I assume that all the proper forms with the local government were done, so the ownership can be documented.

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  • Thank you for such a detailed response.
    – Mike L
    Nov 15 at 20:25
  • OK, so the property value is treated as a sale from the deceased to the estate, with the estate responsible for paying tax on capital gains. That makes sense from a tax collection POV, and also from the "not creating tax burden for inheritors" POV. Nov 16 at 4:25
  • @Harper-ReinstateMonica: no, the estate does not pay tax on the capital gain either. If the estate is large enough there is tax on the total value of the estate, including this property. I believe the threshold is currently $11.7 milllion. Nov 16 at 16:51
  • Nit: unless the grandmother died in 2010, when weird stuff happened to deal with the scheduled expiration of the 2001 tax cuts led by and attributed to Bush#43 nearly coinciding with the 2008/2009 Great Recession (which until COVID was viewed as the greatest calamity in memory). See publication 4895 from 2011. Nov 17 at 1:12

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