My 18-year-old son inherited his grandmother's house. His father wants to buy it from him for $1. Wouldn't my son have to pay capital gains tax? The house is in Pennsylvania

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    How would it be in your son's best interests to give away his inheritance like this? Assuming dad's good intentions (?), there is surely a better way of achieving whatever he's trying to do. – brhans Oct 31 '17 at 16:45
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    Apart from the taxes, it's likely to wreck your father's relationship with his son, if he forces him to give away a house that would presumably help keep him financially secure for life. Your husband should consider that before attempting to force the issue. – Grade 'Eh' Bacon Oct 31 '17 at 16:45
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    @DStanley she(?) seems to mean that the father wants "him" the son to sell it to "him" the father for $1. – RonJohn Oct 31 '17 at 16:45
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    From the little you've told us, this sounds a whole lot like the father is trying to scam the house from his son. More details would help. – RonJohn Oct 31 '17 at 16:48
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    @Grade'Eh'Bacon just because a man is the father of this woman's son, you can't assume that she is married to him. :/ – NL - Apologize to Monica Oct 31 '17 at 16:59

Inherited real estate is purchased at a "stepped up" basis. That is for tax purposes the house price is the value at the time of death. So grandma might have bought the house for $20, and the time of her death, if it is worth 550K the basis price is 550k for your son.

If your son sells the house for $1, then that advantage will be lost. There could be a tax liability created when there does not have to be one. The father when he goes to sell the house could have to pay taxes on the difference between $1 and the current value. A pretty dumb move.

A better option would be for your son to rent the home to his father. He could do so for the carrying cost: taxes, and insurance and that should be acceptable by all.

  • Why would the son owe taxes on the sale? He got the stepped up basis. – zeta-band Oct 31 '17 at 18:18
  • Say what? He inherited the house, basis stepped up. If he sells it for less than that value, how does he owe any tax? – JTP - Apologise to Monica Oct 31 '17 at 18:19
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    Selling a house for $1 is a gift to the purchaser, and gifts can be taxable to the giver. – Shawaron Oct 31 '17 at 18:32
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    Yes. Your answer feels right. But basis usually follows a gift. Seems strange a dollar transaction would both make this a gift, subject to potential gift tax to giver, as well as a dollar basis. Either way, it seems a potential mess. – JTP - Apologise to Monica Nov 1 '17 at 15:43

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