Discussion:Gift of equity
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Discussion Forum Index --> Tax Questions --> Gift of equity
| 29 March 2006 | |
Everyone,
This has been a most unusual tax season~things I've not encountered before and need assistance with.
I have a client who sold his rental property to his daughter who had been renting it and he gifted her 20,500 + closing costs of approx 4,500. My question is: for the selling price of the home do I pick up the total cost including the gift of equity or is that able to be deducted by the parents? I am not certain if the daughter needs to fill out Form 709 or what. Also, this is considered a 1250 transaction correct? Needless to say, being a sole preparer has its drawbacks when you need to ask questions. I've spent the last two days on hold to IRS for over 1 hour each time.
Help Bonny | |
| 29 March 2006 | |
| Well to begin with, you haven't stated the question very well.
I don't think you have a sale here, unless daughter gave dad more than his adjusted basis in the property. You do need to fill out two 709's. Dad & Mom are splitting the gift. | |
| 30 March 2006 | |
| let me try to be more clear: The parents own the piece of property that the daughter has been renting, they originally bought it for that intention. The parents basis is 91K, the sale price is 111,250 and the gift of equity from parents is a total of 24951. The total amount due to the parents on the sale in 99344. The parents basically gifted her down to their basis on this rental property. I need to report the sales price at the 111250 is that correct? or can I report it at 111250-24951=86299? I understand the two 709's each for 11K, however, this exceeds the 11K by 2951, so now what?
Sorry to be ignorant, but I really would like to understand where to go with the basis on the house and if this is considered a 1250? Pub 17 gets confusing on the differences between all the 1250,1245 etc. Thanks again Bonny | |
| 30 March 2006 | |
| The gift is the difference between the fair market value of the property and the amount parents got. Daughter now has parents' basis plus any cash she paid. This not a sale and there is no depreciation recapture at this time. | |
| 30 March 2006 | |
| There is a nondeductible loss on this sale. In addition there is a gift for the bargain purchase element here. The daughter's basis will be $91,000. | |
| 30 March 2006 | |
| abject apologies. daughter's basis for depreciation purpose (if exists) would be parent's basis. nondeductible loss (any amount paid) increases basis for gain on disposition. | |
Mniebruegge (talk|edits) said: | 31 March 2006 |
| It seems to me that the parents sold their daughter the house for 111,250 and gifted the daughter the down payment and closing costs. If the 111,250 is the fair market value of the property an actual sale took place and the parents will recognize gain on the sale assuming the 91K is cost basis, they will have 20K capital gain and have to recap the depreciation. The daughter's basis will be the 111,250 and the parents file a gift tax return for 25k in gifts. | |
| 31 March 2006 | |
| Mniebruegge, that is not how the part-sale/part-gift regulations were drafted. Let me know if you need cite. | |
| 31 March 2006 | |
| Treasury Regulations, Subchapter A, Sec. 1.1015-4 | |
| 3 April 2006 | |
| Thank you all ever so much for your input and for the Treasury Regulation cite. I believe I have a better understanding of this with the exception of whether or not to file a Form 709 on each parent for their half of the equity "gift"
Bonny | |
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