A house in foreclosure was quit claim deeded from son to father. The house is slated to be sold for more than what is owed. The loan is in the son's name. However, the sale proceeds will be in the father's name. What will the father's tax exposure be? Will he be taxed on the full amount of the sale (for example, $200k) or only on the net proceeds (for example 50K) as a short term capital gain? The net proceeds will not be rolled into another property but will be disbursed to fulfill other debts including a divorce decree and child support. The father will not receive any compensation from this transaction.
It hasn't closed yet. If the father will be taxed on the entire amount ($200k) then there is time to cancel the quit claim deed and have the proceeds issued to the son. The son is incapacitated at the moment. They did the quit claim deed thinking it would be easier to manage the sale and sign all the paperwork, not thinking ahead about the tax consequences. Thank you.
