If my wife and her sister sold a home owned by their deceased mother,
does capital gains apply?  And if so, how?

---

Request for Question Clarification by answerfinder-ga on 26 Sep 2005 09:15 PDT

Which country?

---

Clarification of Question by towerdave-ga on 26 Sep 2005 10:53 PDT

Home was sold in California. US

---

Clarification of Question by towerdave-ga on 26 Sep 2005 22:25 PDT

Neither my wife or her sister were living in the house when it sold. 
Their mother was not living in the house when she passed away either. 
At that point it was a rental.  The mother and both daughters names
were on the title to the home which was paid off.  Purchased in 1960s
and sold in 2005.  Most likely purchased for around $20,000 and sold
for around $65,000.

Generally, capital gains tax would be due. As to how much, it depends
on who was living in the house and when.

Assuming that the mother was living in the house when she died and the
house passed into her estate, then (a) the estate would have included
the value of the house in its estate tax return and (b) when the house
was sold by the estate of the mother's heirs, the basis for the house
would have been its value at the time of the mother's death, not the
original purchase price.

So:

   Mother purchases house for $100M in 1980
   Mother dies in 2004. House valued at $300M
   Estate sells house in 2005 for $350M
   The capital gain, subject to tax, would be $50M ($350M minus $300M)

If the house was the principal residence of your wife or her sister,
there may be an exclusion (partial or otherwise) from the capital
gains tax.