Years ago, when both parents were living, they gifted their shore house to me and my two siblings. Brother and I live in other states and don’t get use of the house. Sister is a teacher and is able to spend the whole summer there. After years of splitting the cost of maintaining it, brother and I decided to get off the deed, legally. We had a lawyer draw up a contract that after 10 years, sister would have the property appraised, then pay brother and me each a third of the value. We gave her the 10 years to get all her kids through the college years. This date will be approaching in a few years and now I am wondering how this payment will take place. It will likely be close to $80k each. Will it be considered a gift, income,etc.? Trying to plan for this event to make sure it is done properly. Any suggestions on how to go about this? Thanks for any input you might have.
Ask a CPA with real estate experience
Mostly likely, capital gains. It was a gift when your parents gave it to you and they should have filed gift tax forms (maybe they were not liable for any tax). When you sell your share to your sister, your gain will be your receipts from the sale (the ca $80k) minus your parents’ cost basis when they bought it minus fees to sell it to your sister. If they had kept it and the 3 sibs inherited the house after they died, the cost basis would have been the value of the property at the time of their (last) death date, not when they bought it. You have time to figure this out.