Can gift of equity be included in selling expenses when selling a rental property?

[wfteufel]

We sold a rental property our daughter/son-in-law. 1099S shows the sale as $160K, but we gifted them $32K. So ACTUAL selling price was $128K.  Can we list selling price as something different than what is listed on the 1099S?  Or can we include the $32K as part of selling expenses?

[KrisD · Accepted solution]

No. The IRS allows you to gift to your children (or anyone) and the recipient is not taxed on the gift. There is no tax advantage to the person gifting the funds. In your situation, you need to report the selling price listed on the 1099S. Then you can gift the kids 32,000. Your tax on the sale is not affected.

You could have sold it to them for 128,000, but not if it caused a loss. Also, if you listed it as a selling expense, someone would have had to charge you that fee and claimed that fee as income on their return. 

According to the IRS:

Losses on sales or trades of property.   You can’t deduct a loss on the sale or trade of property, other than a distribution in complete liquidation of a corporation, if the transaction is directly or indirectly between you and the following related parties.