Does My Mother Owe Capital Gains on Property Received in a Quitclaim Deed?

by Dick Nadler, CPA

My mother is selling her home in California and moving out of state. Her husband died 15 years ago, and he signed a quitclaim deed a few days before passing away. Their house had been a joint tenancy on the deed. So how will this affect her as far as capital gains?

The quitclaim deed from her husband to your mother is a gift of his fifty percent interest in the joint tenancy. Your mother owns 100 percent of the property after the gift. As is the rule for all gifts, the basis of the property is the same as the basis in the hands of the donor. In other words, her basis is the actual cost of the house at the time her husband purchased it plus the actual cost of any capital improvements. Your mother will be subject to capital gains tax on the profit of the sale of the house that exceeds $250,000.

Let's suppose that your mother's husband bought the house for $30,000 and subsequently put in $20,000 in capital improvements. The basis of the house at the time of his death is therefore $50,000 ($30,000 plus $20,000). Now let's suppose that your mother sells the house for $395,000. Her profit is $345,000. The first $250,000 of profit is excluded from capital gains tax, but the remaining $95,000 is taxable.

It would have been better for your mother if her husband had not signed a quitclaim and, instead, left the house to your mother in his will. If he had done so, then the basis of the house would have been the value of the house at the time of his death.

Your mother may want to consult an attorney, who possibly could rebut the gift presumption. Perhaps your mother and her husband had a written agreement stating that regardless of how the title is held, their intent is that the house is community property. Then the basis of the property would be its value on the date her husband died. If the property was worth $300,000 at the time of her husband's death and your mother sold it for $395,000, she would not owe capital gains tax.

Dick Nadler, CPA, is principal of Nadler Accountancy Corp., Orangevale, Calif. You can reach him at

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