Inheriting home through quitclaim deed - how will capital gains be calculated?

The capital gains classification depends on your holding period, which starts from when you received the property via quitclaim deed, not from your father's death. Since you received it in June and plan to sell in 2025, that's over a year, so you'd qualify for long-term capital gains rates (assuming you don't sell before June 2025). Your basis in the property is your father's basis (what he originally paid plus improvements) at the time he transferred it to you, not the market value at his death. This is different from if you'd inherited it through his will. With a quitclaim deed before death, you don't get what's called a "step-up in basis" that would've reset the value to the market value at death. Regarding Form 709, yes, your father should have filed this for the year he transferred the property if the value exceeded the annual gift exclusion. Since he's passed, your sister as the personal representative should file this with his final tax return. To reduce tax burden, consider if either of you lived in the property as your primary residence. If you lived there 2 out of the last 5 years, you might qualify for the primary residence exclusion.

I was in a similar situation last year with my mom's house and used this service called taxr.ai (https://taxr.ai) that really helped me understand my options. They analyzed the deed transfer documentation and explained exactly how the capital gains would be calculated based on when we received the property vs when she passed away. What was particularly helpful was that they outlined several options that could reduce our tax liability - including partial exclusions I didn't know about. They even identified that our situation qualified for a special provision regarding caregiver relatives that made a huge difference. Might be worth checking out since inheritance tax situations can get complicated quickly.

Just wanted to follow up about taxr.ai - I decided to try it with my aunt's property transfer situation, and I'm actually impressed. They identified that the quitclaim deed was executed incorrectly which would have caused major tax issues down the road. They explained exactly how to fix it and the proper filing sequence to avoid triggering unnecessary gift taxes. What I appreciated most was that they didn't just give generic advice - they pointed out specific language in our documents that needed correction and provided template language for the amendment. Definitely saved us from what would have been an expensive mistake. Wish I'd known about this service when dealing with my parents' estate last year.

If you're planning to call the IRS to get clarification on the Form 709 requirement, good luck! I spent 3+ hours on hold trying to get similar questions answered for my mom's estate. Finally found this service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent in under 30 minutes. They have this system that holds your place in line and calls you back when an agent is available - you can see how it works here: https://youtu.be/_kiP6q8DX5c It was actually worth it since the IRS agent confirmed we needed to file the 709 even though the property value was just slightly over the exemption limit. She also explained exactly which forms to include with the final tax return, which saved us from potential penalties.

Had to come back and admit I was wrong about Claimyr. After dealing with the gift tax questions on my mother-in-law's estate, I was at my wit's end trying to reach the IRS. Called for 3 days straight with no luck. Tried Claimyr as a last resort, and they got me through to an IRS agent in about 45 minutes. The agent clarified that in our case, we did need to file the 709 with the final return, but also told me about Form 8892 which allows for an automatic extension specifically for gift tax returns that I had no idea existed. This saved us from potential late filing penalties since we were approaching the deadline. Sometimes you need to talk to an actual person at the IRS to get the right answers for your specific situation.

Something else to consider: check if your state has any inheritance tax that might apply. I'm in Pennsylvania, and even though we didn't owe federal taxes on my dad's house due to the exemption amount, we still got hit with state inheritance tax. Each state has different rules. Also, keep ALL documentation about improvements your dad made to the property over the years. If you can prove he put in a new roof, renovated the kitchen, etc., those costs get added to his basis, which reduces your capital gain. My brother and I found old receipts in dad's files that saved us nearly $15k in taxes by increasing our basis.

I'm confused about something - if the quitclaim deed was already executed and recorded before your father passed away, doesn't that mean it was a gift rather than an inheritance? In that case, wouldn't your basis be your father's basis at the time of the gift (not stepped up)? But then if you held it for more than a year before selling, it would be long-term capital gains regardless of when he passed away? I ask because my parents did something similar but I'm not sure how the taxes work.

One additional consideration that hasn't been mentioned yet - since you and your sister both received the property together via the quitclaim deed, you'll likely need to determine how to split the capital gains tax liability when you sell. The tax consequences will depend on whether you're considered joint tenants or tenants in common, which should be specified in the quitclaim deed. Also, make sure to factor in selling costs (realtor commissions, closing costs, etc.) when calculating your capital gains - these can be deducted from your gain to reduce the taxable amount. Given that the property has appreciated significantly since the 90s and you're using your father's original basis, every deduction will help minimize your tax burden. If the capital gains are going to be substantial, you might want to consider an installment sale if your buyers are willing - this allows you to spread the tax liability over several years rather than taking the full hit in 2025.