Sale of my home to a related party

Forum|Forum|5 years ago
April 1, 2021
14 replies
103 views

I do not see any question about selling to a related party in the section where I report a sale of home.

There is a such question for rental property that was sold but not for the main residence.

How do I report a sale of my main residence to a related party?

DianeW777

Alumni - Intuit

You do not report that for the sale of your main residence. The question is not relevant when a home sale is involved. The reason is because a personal residence sale that results in a loss is not allowed at all. For this reason the question is not needed for the sale of your main residence.

A rental home sale is important because if you sell it to a relative and it results in a loss, you would not be allowed to claim the loss against other income, whereas if you sold it to an unrelated part at a loss, you would be allowed to offset that loss against other income.

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apollogAuthor

Level 4

The thing is that I get 1099-S, so I have to report the sale, and if it is to a related party, the gain is taxed as an ordinary income. In my case the gain will be less than $250K.

So, how Turbotax will know that it should be taxed as ordinary income, and how will it apply the $250K exclusion.

DianeW777

Alumni - Intuit

You report the sale of your main home as a regular home sale. Related party rules are put in place to eliminate the ability to sustain and report a loss on a sale, that would affect and reduce other income categories.

There will not be ordinary gain, rather capital gain and if you meet the qualifications you will be allowed to exclude the gain.

Qualifying for the Exclusion

In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if:

you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale.

Generally, you're not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements, limitations on the exclusion amount, and exceptions to the two-year rule.

If you are saying you are retaining a 'remainder interest' in the property then other rules may apply.

Remainder interest. (usually involves a gift and not a sale)

The sale of a remainder interest in your home is eligible for the exclusion only if both of the following conditions are met.

The buyer isn’t a “related party.” A related party can be a related person or a related corporation, trust, partnership, or other entity that you control or in which you have an interest.
You haven't previously sold an interest in the home for which you took the exclusion.

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