Do I have to pay capital gains tax on a house where my son sold me his part for 1.00?

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Do I have to pay capital gains tax on a house where my son sold me his part for 1.00?

My son and I bought a house together for
investment purposes. A few months later he
sold me his part for 1.00. Now years later I
want to sell it and I was told I have to pay
capital gains on the full amount. Is this true?

Asked on May 16, 2017 under Real Estate Law, New Jersey

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

Yes, it is true: since he sold his interest in or part of the house, the entire home--and therefore all capital gains from it--belong to you. The owner(s) of investment real estate (you) have to pay capital gains tax on it. Since you purchased it for only $1.00, his share was effectively gifted to you: $1.00 is as close to $0.00 or free as makes no difference. You have no offsetting basis in his portion of the house: i.e., to oversimplify, if you each paid $125,000 initially and now it's worth $500,000, you have a $500k property you bought for only $125,001, and so $374,999 of gain.


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