@TomD8 wrote:
"...she told me the amount on the 1099-S will be the purchase price. "
Correct. And the purchase price should NOT include the gift of equity, if the 1099-S is prepared correctly.
If you think about it, how can a gift that the seller is giving be considered part of the gross proceeds received by the seller (Box 2 of the 1099-S)? That makes no sense.
Because per the attorneys, who issue these forms all the time, it is no different than if someone had just given be cash. Remember the purchase price is 200k, and the gift of equity is just a downpayment towards that purchase price.
Per Quicken Loans, which I think is the nation's largest mortgage lender, "a gift of equity reduces the sale price of a home (aka the cost basis)."
https://www.quickenloans.com/learn/gift-of-equity#:~:text=Negative%20effect%20on%20home's%20cost,pay....
I’m even using Quicken, and I can’t explain this descrepancy. At the end of the day it seems to be written anonomously and regurgitated across every mortgage lender under the sun, but nobody at Quicken can explain it, and everyone is really quick to tell me that I would have to talk to a CPA about it.
Just called Quicken and spoke to a different guy there, and even he said that we would have to pay capital gains for the sale price of 200k. He reminded me however that really, what it says can still be true, since the purchase price is still significantly lower than the appraised value, so therefor the cost basis IS reduced simply because it is being sold for below market value.
