Q: When my mother purchased her small condo 20 years ago, she put it in my sister’s name and in my name. She passed away a few years ago, and my sister now lives in the condo. She wants to buy me out of my interest for half the value at the time of Mom’s death ($20,000). How will this affect my income? I receive a subsidy for health care under the Affordable Healthcare program. Will I have to claim this as income for 2018?
A: If your sister is paying you $20,000 for your half of the interest, we have to take a step back to see the circumstances around the purchase of the condo when your mom closed on it first. Let’s say your mom purchased the condo for $20,000. Her “basis” would have been $20,000 plus any costs to purchase the condo. The IRS uses the word basis when dealing with the cost of a piece of real estate.
Once you know that basis, your mom put the condominium in your names and effectively gave the condo to you at that time. So we might be able to say that your basis was the $20,000 as well since you received title to the property from your mother. Now the value of the condominium has doubled, and your sister will buy your half share for $20,000. To keep the numbers simple, we can say that the basis of your half interest was about $10,000 and the sale price of your half interest would be $20,000, or a $10,000 profit.
If this is the scenario you face, you’d have to report the $10,000 profit on your income taxes. That profit could affect the subsidy you receive under the Affordable Care Act, but we can’t know for sure. You’ll have to sit down and go over the numbers on the condo. The condo’s value does not appear to be too high, and we’ve made the assumption that its value doubled; but it also could be that the value stayed the same and the $20,000 you get is simply a transfer of the value of the property to cash to you without affecting your income.
You may also need to talk to an enrolled agent or tax professional to walk through all of your figures and to also see whether there are other mitigating circumstances in your situation.
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.