Income from condo sale could alter health subsidy

Q: When my mother purchased a condo 20 years ago, she put it in my sister’s name and in my name. She passed away a few years ago, and my sister now lives in the condo. She wants to buy my interest for half the value at the time of Mom’s death ($20,000).

I receive a subsidy for health care under the Affordable Healthcare program. Will I have to claim this as income?

A: If your sister is paying you $20,000 for your half of the interest in the property, we have to take a step back to review the circumstances related to the purchase of the condo.

Let’s say your mom purchased the condo for $20,000. Her “basis” would have been $20,000 plus any costs to purchase the condo. The IRS uses the word basis when dealing with the cost of a piece of real estate.

Once you know that basis, your mom put the condominium in your names and effectively gave the condo to you at that time. So we might be able to say that your basis was the $20,000 as well, because you received title to the property from your mother.

Now the value of the condominium has doubled, and your sister will buy your half-share for $20,000.

To keep the numbers simple, we can say that the basis of your half-interest was about $10,000, and the sales price of your half-interest would be $20,000, or a $10,000 profit.

If this is the scenario you face, you’d have to report the $10,000 profit on your income taxes. Those profits could affect the subsidy you receive under the Affordable Care Act.

The condo’s value doesn’t seem to be too high, and we’ve made the assumption that its value has doubled; but it could also be that the value stayed the same and the $20,000 you get is simply a transfer of the value of the property to cash to you without affecting your income. You should talk to a tax professional for guidance.