Hello all,

 

Please help me answer the questions I have on 121 exclusion. I couldn't find a relevant page to answer this question. 

 

When a house is gifted and the owner has stayed in the house for more than 40 years,  does the 121 exclusion( 5 years own / 2 years live rule, 250K exemption for capital gain tax, gifter is single )  transfer to the gift receiver as the cost basis of the house? Or does the receiver loses that exemption if he sells the house in less than say  2 years after the gift?

 

e.g.: Owner bought the house at 150K, in 1980, and in 2003 he paid $215K to his ex-wife as part of the divorce settlement (valuation in 2003 was $430K), gifter has made $35K capital improvements over the last 40 years.

 

a. For the owner the cost basis is 75+215+35 = $325K. Is this correct? 

 

b. If the owner sells the house for $575K, he pays no capital gain tax. Is this correct? 

 

c. If the owner gifts the house and the gift receiver sells the house for 575K in less than say 2 years after the gift, does the gift receiver pay capital gain tax on $0 or $250K?

 

If you have a relevant link/text for this topic, please post it. 

 

Thank you in advance.