Home Acquired by Gift, Inheritance, Etc.

If you received the home (or the part you did not already own) as part of a settlement in a divorce, you generally have no gain or loss at the time of the transfer. Thereafter you will essentially "stand in the shoes" of your former spouse and take whatever basis he or she had in the property, as to the part you received in the settlement. If the home was originally purchased by you and your former spouse together, the basis of the home will generally be figured based on its cost.

If you received your home by bequest or inheritance, your initial basis is the fair market value of the home on the date of the former owner's death, or the alternate valuation date if the estate is using that date for estate tax purposes. If an estate tax return was filed, use the amount shown for the home on the tax return. If the estate was too small to require the filing of an estate tax return, you may need to get an appraisal showing the home's value as of the date of death. Special rules apply in community property states, where the death of one spouse causes the home to pass to the other spouse. Consult your attorney or tax professional for more details.

If you received the home as a gift, your initial tax basis will generally be the same as that of the person who gave it to you. You can add to this basis the part of any federal gift tax paid by the donor that is attributable to the increase in the home's value. See IRS Publication 551, Basis of Assets, or your tax adviser for more details.