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

UPDATED: Sep 30, 2022

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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


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 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.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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