I got a 1099 S from the sale of rental property that I really had no interest in - I was just a legal co-owner. I never reported this property on my taxes. What do I do?

[kjt8]

My co-owner was the one that lived in the property and then rented it for a few years. I had nothing to do with it other than be on the deed & mortgage. She paid everything.  I never reported owning this property and now I have a 1099 S that says how much it was sold for.  I only received 20% of the profit.  How do I handle this on my taxes?  I'm afraid the IRS will think I got more money then I did and as I said, I never reported owning it in the first place - didn't think I had to.  Thank you!

[Opus 17]

I'm going to send you to an accountant, or maybe the Turbotax Live service.  You have a problem.

You say you had "no interest", but you were a co-owner, and received 20% of the profit.  Obviously you did have an interest.  

If you were a co-owner with no specific ownership percentage listed in the deed as filed with the county, then you will be assumed to be an equal owner with the other owners (50/50, or 1/3, 1/3, 1/3, etc.) and the IRS will view you as responsible for that percentage of the tax.  (And, seeing that the 1099-S is in your name, they will likely see you as the only owner and responsible for all the tax.)

You do owe, at a minimum, capital gains tax on 20% of the gain.  Your cost basis is the original price minus the rental depreciation.  Your gain is the sales price minus the cost basis.  The gain is taxed at 25% for depreciation recapture, and 15% for long term capital gains over the recapture amount.

Since you never reported owning the property, you probably don't know anything about depreciation, or rental expenses.  Did the other owner live there as a personal residence, or did the other owner rent it out and take care of the paperwork?  You likely need to see lots of documentation from the other owner (past tax returns, depreciation schedules, etc.)

Without the documentation, you can't prove your basis and if audited, you may be assessed income tax on the entire sales proceeds.

So, get to an accountant or enrolled agent, and hopefully the other owner will cooperate with documents.

[kjt8]

Thank you for the response.  One more question:  should the closing attorney have put both our names on the 1099 S?  They sent both of us a 1099 S showing the total sales price - it won't be evident to the IRS that it was co-owned then, correct?  Should I have the closing attorney correct this if so?

[Opus 17]

I don't think the 1099-S allows 2 names on the form, although the instructions are not specific enough.


@Hal_Al anything further you can add?

[Hal_Al]

Yes, the closing agent coulda shoulda done it differently, but what he did is actually more common. You don't have much chance of getting a corrected 1099-S. You have to coordinate with the other co-owner, to insure that everything is reported either on your return or his.
I agree with Opus 17; you probably only need to report your 20% of the gain and the other owner reports his 80% and the depreciation recapture.
If he fails to do so, you could be on the hook if audited.

You should report the full amount on the 1099-S on your tax return (to match the info the IRS got) and then adjust your cost basis. Using an example: $150,000 on 1099-S, cost was $50,000 = $100,000 profit; $20,000 (20% was yours. Report $150,000 sale amount and $130,000 as your cost basis to show a $20,000 capital gain

[kjt8]

I just looked at the form and it seems like you could add two people - it has a place for 2 people to sign also.

[kjt8]

Thank you - I appreciate your further help!  One last question:  which TurboTax should I use?  Technically, the property was rental property although I'm not the one that rented it or received the rental income - like I mentioned, I never showed this property on my taxes in any way.  So, not sure what version I should get - do I need the premier or ?

[kjt8]

Thank you - I appreciate your further help!  One last question:  which TurboTax should I use?  Technically, the property was rental property although I'm not the one that rented it or received the rental income - like I mentioned, I never showed this property on my taxes in any way.  So, not sure what version I should get - do I need the premier or ?

[Hal_Al]

You need premier to report  the sale of a capital asset. Type> 1099-s, sale of property other than main home <in the find box.

[kjt8]

Thanks again to both of you!!