Transfer of 121 exclusion from owner to the gift receiver
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.
