Best Way to Handle Capital Gains for Jointly Owned Property

[mjfales]

I sold a home in 2021 that was occupied by my parents, but owned jointly between my Mom and me.  I'm trying to determine how best to handle this sale and any capital gains that may be due for it.  Right now, it seems my taxes owed are very high, but I'm thinking I must not be doing something right.  When the sale was closed, two checks were written.  One to me and one to her.  Not for identical amounts.  I'm so lost on this.  Help!  I'm sure I'm still not providing enough info.

[Vanessa A]

If you did not live in the home for 2 out of the last 5 years you would not be eligible for the home sale exclusion. So you will be liable for capital gains taxes on your share of the profit.

A few things you can double check to be sure you are not over reporting your gain on the sale and paying the minimal tax possible on the sale.

1. Did you enter only the amount that you received from the sale or did you enter the entire amount of the sale?  You should only enter the amount you received.
2. Did you enter all the selling expenses and your basis in the property?
3. Are you married?  If so, are you filing a joint or separate return?  Depending on your other income and your spouses income and the profit from the sale, filing a separate return could lower your overall income which could lower your capital gains rate

[mjfales]

Vanessa - this is helpful!  I changed the amount received to just the amount I personally received at closing.  I am making sure to include all capital gains loss/cost basis info.  

I am filing jointly with my husband.  We are both retired and are drawing money from only his IRA.  Will filing separately help reduce this further?

[mjfales]

Vanessa - this is helpful!  I changed the amount received to just the amount I personally received at closing.  I am making sure to include all capital gains loss/cost basis info.  

I am filing jointly with my husband.  We are both retired and are drawing money from only his IRA.  Will filing separately help reduce this further?

[Vanessa A]

Be sure you split the basis and closing costs between you and your mom.

If he is the only one drawing from the IRA, then it is possible, depending on how much he is pulling out and the profit from the sale of the home, that you would make out better filing a separate return especially if your profit is less than $40,400. 

The Capital Gains rates for Married filing separately

• Up to $40,400                             0%
• $40,401 to $250,800                   15%
• Over $250,800                             20%

Married Filing Jointly 

• $80,800                                   0%
• $80,801- $501,600                  15%
• Over $501,601                         20%

You can enter your info in TurboTax with and without him and then enter his without you, then add together the tax or refund due from each return.  This way, you will know for certain if filing separately helps or not.  

[mjfales]

What if our portion of the proceeds were more than $40K. And, I don’t receive any retirement income. It’s all drawn in my husband’s name. Should I even bother with trying to run it different ways? 

[GeorgeM777]

To follow-up on the comment from @VanessaA, at least on the portion of the capital gain it would appear that filing MFJ is your better option because you won't begin to pay any long-term capital gains tax until such gains are over $80,800.  However, to know for certain whether MFJ is the better option versus MFS, it is best to prepare both types of returns and then compare the respective tax outcomes. 

If you choose the latter option, you may not need to prepare the entire MFS return, but perhaps just enough to get a good idea of the tax outcome.  

@mjfales