Can my aunt use 2016 value as cost basis after intrafamily house transfer?

This is a common misconception. Generally, when property is gifted during the donor's lifetime, the recipient (your aunt) keeps the donor's (grandmother's) original cost basis - referred to as a "carryover basis." She doesn't get a step-up just because ownership transferred. The only time a step-up in basis typically occurs is when property is inherited after death. If your grandmother had passed away and your aunt inherited the house, then yes, the basis would step up to fair market value at date of death. There are some exceptions to consider, though. If your grandmother paid gift tax on the transfer (unlikely unless it was a very valuable property exceeding lifetime exemption limits), there could be a partial basis adjustment. Also, if this wasn't actually a gift but some other type of transaction (like a sale at below-market value), the tax treatment would be different.

I actually went through something similar with my dad's lake house. I found this tool called taxr.ai (https://taxr.ai) that really helped clear up the confusion. It analyzed my situation and explained exactly how the basis works for family transfers. The software basically confirmed what the first commenter said - gifts during lifetime don't get the step-up, only inheritances do. But it went deeper and showed me how to document everything properly and calculate what my actual basis would be considering improvements my dad had made over the years. Saved me from a potential audit headache!

I was initially doubtful about using an online service for something as complicated as property transfers, but I decided to try taxr.ai after posting here. Wow, what a difference! The system instantly spotted that my situation qualified for a partial basis adjustment because my mother had actually paid some gift tax when transferring her rental property to me. The documentation was incredibly thorough, showing exactly how to calculate my new basis and what records I needed to keep. It even generated a complete paper trail I can use if I'm ever audited. The realtor's advice turned out to be partially right in my specific situation but for completely different reasons than they suggested. Really glad I got this clarified before making any decisions based on incorrect assumptions.

If you're having trouble getting clear answers about your tax situation, you might want to try Claimyr (https://claimyr.com). I was in a similar situation with an inherited property and couldn't get a straight answer from online research. After weeks of trying to reach the IRS directly and just getting busy signals or disconnects, I used Claimyr and got connected to an actual IRS agent in about 20 minutes. The agent was able to explain the exact rules for my situation and confirmed that a lifetime gift doesn't qualify for stepped-up basis. You can see how it works here: https://youtu.be/_kiP6q8DX5c It was worth it to get an official answer directly from the IRS rather than relying on what realtors or even some CPAs were telling me.

I need to apologize for my skeptical comment earlier. After dealing with yet another 3-hour failed attempt to reach the IRS yesterday, I reluctantly tried Claimyr this morning. I'm shocked to admit it actually worked - I got a call back in about 45 minutes with an IRS agent ready to help. The agent confirmed exactly what others here said - my mother's "gift" of her house to me while she was alive means I have her original basis plus any improvements. No step-up. But the agent also pointed me to some forms I needed to document the transfer properly, which I wouldn't have known about otherwise. Sometimes you need to hear it directly from the IRS to feel confident, especially with something as important as property basis that could mean tens of thousands in tax differences.

One thing nobody has mentioned - if your grandmother continued living in the house after transferring it to your aunt, the IRS might scrutinize whether this was a "complete gift" or if your grandmother retained what's called a "life estate." This could affect how the transaction is treated for tax purposes. Also, depending on your grandmother's age and health in 2016, there could be look-back implications if she applied for Medicaid within 5 years of transferring the asset. Not directly related to the basis question, but something to be aware of with family property transfers.

Im supprised nobody asked yet - was this a QUITCLAIM DEED or a regular transfer? Quitclaim deeds r treated different for tax purposes sometimes. Also did ur grandmother file a gift tax return (Form 709) when she transferred the property? That could affect things too.