Q: I purchased a condominium from my mother in 1997 for a small nominal fee after living in it for 10 years. If I sell the unit now, would I pay taxes based on the county’s appraised value in 1997, or do I pay taxes based on the purchase price from my mother that is stated on the deed transfer?

A: In a sense, you have answered your own question. Once you say that you purchased the condominium for a specific amount, you have basically stated that your purchase price was that nominal fee.

If that's the case, you bought it for one price and will sell it for another. The difference between the purchase price and sales price is your profit or loss.

Of course, there are other factors that go into determining your actual profit on the property. You may have made improvements to the unit and had costs relating to its purchase, and you will probably have expenses relating to the sale. The tax you will pay will take into consideration what you paid for the home, major upgrades and improvements, and the costs of purchase and sale.

One question you should consider is the concept of a “nominal price.” Sometimes, people set up a buy and a sell with a nominal price when they really intend the sale to be a gift, say from parent to child. So, which one was it? Was it a gift or a sale?

Let's say the condominium was worth $100,000 when you purchased it, but you only paid your mother $1,000 in 1997. In this instance, it would seem that the conveyance was really a gift to you and not really a purchase or sale. When you receive a home as a gift from a parent, you step into your parents' shoes when it comes to the home's value. So if she paid $50,000, you would receive the property at her purchase price of $50,000 and then may be able to add the $1,000 or nominal amount you paid your mother to her basis, to get your new basis of $51,000.

We don't know why you and your mom would have structured the transaction this way. We have repeatedly told our readers that there is often a better way of transferring real estate, especially if you expect a profit on the sale.

Since you now own the unit, you will need to figure out what your total cost basis is: either how much your mother paid for the property (if it was a gift) or the nominal amount you say you paid that was an actual purchase price. Then, add in any costs for major improvements or renovation projects. When you sell the condo, your profit is reduced by the amount of the sales commission and any other costs of sale plus the cost of purchase and the cost of those improvements.

The good news is that you live in your home as a primary residence. Even if you have a profit, the IRS allows you to exclude from federal income taxes up to $250,000 in profit (up to $500,000 in profit if you are married) on the sale of a principal residence, as long as you lived in the property for two out of the past five years. If you are single and sell the condo for $250,000 or less, you probably don’t have much to worry about. However, if you sell it for more than $250,000, you will need to spend some time to figure out how much tax you’ll owe.

Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them through her website, ThinkGlink.com.

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