Legal Question in Tax Law in Pennsylvania
Tax implications of a property transfer
In 2004, my father-in-law transferred full ownership of his home to his daughter (my wife). My father-in-law died and my wife sold the house in March, 2008.
The transfer deed contains the words ''...in consideration of One ($1) Dollar, in hand paid,...the Grantor does hereby grant...'' etc.
Does this mean my wife bought the house from her father for $1, in which case we will owe taxes on the full sales price; or was the transfer a gift, in which case the basis price will be my father-in-law's purchase price plus improvements?
1 Answer from Attorneys
Re: Tax implications of a property transfer
This is the normal consideration recited when a gift is made, to keep the recording fees to a minimum. Your FIL made a gift to his daughter, which carries transfer basis (your FIL's cost plus any improvements over the years he owned it). Likewise, since it was a gift, the holding period for determining if the gain is long or short-term, runs from the date of acquisition by your FIL, not the transfer date. Did he reserve a life estate when he made the transfer? Arguably, if he did, this might increase your basis for tax reporting, as his reserved value (life estate) might be considered as an inheritance which would allow increased basis. This possibility should be discussed with your tax advisor.
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