Cap Gain Tax for Second Home

[Peter Min]

My wife owned a property before we got married and then moved into my property when we married.  Her property is occupied by my mother in law and is now a second property.  If we sell her property, will the cost basis in determining capital gain tax be calculated from when my wife first bought the property or when we got married?  Or is there a different treatment from when it’s considered a second property?  I read that for the purposes of writing off a loss on a primary residence that is converted to a rental property, that you calculate the cost basis from when it’s converted to a rental property - so does the same work in calculating capital gain?

To use actual number and dates:

- property purchased for $165k in 7/2011

- married 3/2015.  Property appraised for approx $230k.  Mother in law moved in on this date

- at two year mark in 3/2017 where my wife could no longer get the primary property cap gain tax exception, property estimated at $325k

If we are to sell property today for $350k what would be our capital gains tax?

[Natalie Kolodij]

Originally posted by @Peter Min:

My wife owned a property before we got married and then moved into my property when we married.  Her property is occupied by my mother in law and is now a second property.  If we sell her property, will the cost basis in determining capital gain tax be calculated from when my wife first bought the property or when we got married?  Or is there a different treatment from when it’s considered a second property?  I read that for the purposes of writing off a loss on a primary residence that is converted to a rental property, that you calculate the cost basis from when it’s converted to a rental property - so does the same work in calculating capital gain?

To use actual number and dates:

- property purchased for $165k in 7/2011

- married 3/2015.  Property appraised for approx $230k.  Mother in law moved in on this date

- at two year mark in 3/2017 where my wife could no longer get the primary property cap gain tax exception, property estimated at $325k

If we are to sell property today for $350k what would be our capital gains tax?

 Correct- Looks like she should have sold last year to meet the 2/5 rule and get the 121 exclusion. 

None of the appraisals or marriage impacts any thing. 

Her gain will be $350k sale price - $165k basis (purchase) - $??? for any improvements done to it over the years - $??? for any selling expenses.