Solved: Do I report sale of primary residence I bought out...
Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
Announcements
TurboTax has you covered during Covid. Get the latest stimulus info here.
cancel
Showing results for 
Search instead for 
Did you mean: 
evanha
Level 1

Do I report sale of primary residence I bought out of an investment for rental property development?

My husband and I had an investment partner in a rental property. In 2020 we finished construction on a primary residence and additional investment house. We sold the investment house and the third partner divested from the property and when finished, we closed on a new loan for the primary residence.

 I received a 1099 showing that my main house, saying that I earned $225k from the sale, but that equity was just used as part of the loan. Do I have to report this as a sale? Do I need to even claim the 1099?
1 Best answer

Accepted Solutions
ToddL99
Employee Tax Expert

Do I report sale of primary residence I bought out of an investment for rental property development?

Since the sale of unit 1 was reported on Form 1099-S (to you and the IRS), you will have to report that income on your tax return. 

 

While you may not have received $225K in cash when you sold the property to yourselves, you did receive the value of the property (now titled in your and your husband's name) - that value included the FMV of the land and the cost of any improvements made to the land by the previous owners (i.e. the investment group)

 

Whether or not this transaction results in taxable gain will depend on the investment group's cost basis in the property, as well as how the reported sales price was allocated to members of the investment group.

 

Caution- when property changes hands between related parties (i.e. the investment group and you/your husband), the IRS expects that the value of that property is established in an "arms-length" manner. You cannot sell something to yourself for less than what it is worth just to avoid gain (or create a loss). This is a strong temptation when a "principal residence" is involved.

 

 

 

View solution in original post

7 Replies
ToddL99
Employee Tax Expert

Do I report sale of primary residence I bought out of an investment for rental property development?

Please clarify - what property did you sell?  Was your "primary residence" included as part of the rental properties/investment house?

evanha
Level 1

Do I report sale of primary residence I bought out of an investment for rental property development?

Hi - thanks for your help! The original lot was a rental property. Then, we subdivided the lot and built two structures. Unit 1 we kept for ourselves and unit 2 we sold upon completion.

ToddL99
Employee Tax Expert

Do I report sale of primary residence I bought out of an investment for rental property development?

And for further clarification -  you received a 1099-S for the sale of Unit 2, gross proceeds of $225K?

evanha
Level 1

Do I report sale of primary residence I bought out of an investment for rental property development?

Hi! I received two 1099s:

  • One for the sale of unit 1 from the investment group (my husband, myself, and our investment partner) to just my husband and I. This is for $225k, but is an arbitrary number because we chose our own sales price to ourselves.
  • One for the sale unit 2 from the investment group to other owners.

For the first 1099, how do I report that I didn't actually receive $225k from the sale of this property?

ToddL99
Employee Tax Expert

Do I report sale of primary residence I bought out of an investment for rental property development?

Since the sale of unit 1 was reported on Form 1099-S (to you and the IRS), you will have to report that income on your tax return. 

 

While you may not have received $225K in cash when you sold the property to yourselves, you did receive the value of the property (now titled in your and your husband's name) - that value included the FMV of the land and the cost of any improvements made to the land by the previous owners (i.e. the investment group)

 

Whether or not this transaction results in taxable gain will depend on the investment group's cost basis in the property, as well as how the reported sales price was allocated to members of the investment group.

 

Caution- when property changes hands between related parties (i.e. the investment group and you/your husband), the IRS expects that the value of that property is established in an "arms-length" manner. You cannot sell something to yourself for less than what it is worth just to avoid gain (or create a loss). This is a strong temptation when a "principal residence" is involved.

 

 

 

View solution in original post

evanha
Level 1

Do I report sale of primary residence I bought out of an investment for rental property development?

Thank you, appreciate the context. How would I go about reporting an amount "other" than the amount listed on the 1099. For context, the amounts given to us include the amount that was also divested to the other investment partner and my husband and I are married, but filing separately. 1099s for mortgage interest include a way to specify why the amount being reported is different than the 1099, but I don't see that option for investment property.

KrisD15
Expert Alumni

Do I report sale of primary residence I bought out of an investment for rental property development?

There is a way to back out income in the TurboTax program.

Report the 1099 as reported, the IRS will want to match it. 

Then use a very clear description of why you are backing out income, in your case something like "Shared 1099" 

Keep clear records with your tax file.

 

After entering the 1099-MISC, please follow these steps:

 

Sign into your account and your return

Type   other reportable income   into the Search Box and click the “Jump to other reportable income” link

-OR-

Click Federal on the left side-bar

Click Wages & Income along the top

Scroll down to the last section Less Common Income and click Show more to open drop-down

Scroll down to last section Miscellaneous Income and click Start

Scroll down to the last section Other reportable income and click Start

Enter a description such as “Shared 1099” and the amount as a negative number (be sure to make it negative)

This negative amount will be entered on line 21 to lower the taxable amount of the 1099

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Dynamic AdsDynamic Ads
v
Privacy Settings