Tax Questions on Installment Sale of Inherited Property

[David Gore]

My grandfather passed away two years ago. My mother inherited the home, but wants me to have the proceeds from the sale of the home.

I have a potential buyer interested in a land contract.

I need to determine the best way to handle this deal to simplify the process and minimize taxes.

My mother would prefer not to be part of the land contract. She doesn’t want to complicate her simple taxes, and she doesn’t want the burden of collecting payments, etc.

The home belonged to my grandparents for most of their lives. The value we estimated in the probate paperwork was $35k.

The buyer is willing to pay $45k plus interest in installments over 15 years.

Questions:

1.) If my mother gifts me the house, will she have to pay any taxes? If she records the gift amount as $45k, and we estimated $35k on the probate paperwork, does that mean she will need to pay taxes on a $10k gain? If so, it seems wrong as we had no idea what the home would sell for at the time of his death. No appraisal was performed or ever performed on the home.

2.) What tax obligations will I incur by receiving the gifted property and immediately selling it via land contract? Will I be subject to short term capital gains taxes? If so, would it be on the full amount, or just the interest received over the $45k gift basis amount?

Any advice or recommendations would be greatly appreciated.

This is in West Virginia.

Thanks,

David