Selling a personal home before 2 years

[Alex Corral]

Hey guys, I am thinking of selling my home. It's a particular situation. I have lived in the home for 12 years since it's my moms. Last year, I refinanced and took the house over. Only been on title technically 1 year. The market is crazy in Denver now. If I sell it, I'm assuming I have to pay capital gains tax, correct? Can I 1031 the money into something else out of state? Or will that not work since it's personal to investment?

[Jon Holdman]

What do you mean you "took over the house"?  Do you mean your mom gave it to you, you refinanced and are now paying the mortgage?  That has tax consequences, none good.  For one, that would be a gift in excess of $14,000, which exceeds the annual gift limit.  Your mom would need to file form 709 Gift tax return.  No tax is due, unless she's used up her $5.49 million limit.

Worse for you is that because she gave you the house while she was alive, her basis becomes your basis when you sell.  When property transfers at death, the reciepent gets a "stepped up basis" which is the value on the date of death.  But when transfered while alive you get her basis.  So, you'll need to find paperwork for when she bought it as well as any capital work done on the property since then.

Yes, if you sell before owning and living there for two years then you will have capital gains.  These are the selling price, less selling costs and then less your basis.  This is where having her basis really hurts.  OTOH, if she bought it in 2006 at the height of the previous bubble, you may not be too bad off.

1031 exchanges are for investments only, not your residence.