turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
Announcements
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

Hey_Rae
New Member

Relatives and Capital Gains

Hello! We inherited a house really close to our own home and plan to move there eventually. We would like to make it possible for our daughter to move back to the area. We have owned our current home 25 years, she grew up here. We don't plan to charge FMV rent, just cover living expenses. If she stays in our home indefinitely, will we be required to pay Capital Gains? It is my understanding we can only allow her to stay up to 3 years prior to selling if we don't want to pay CG - which would be A LOT! This area has become almost impossible to afford, otherwise I would say she could eventually purchase it, or nearby in same school district. 

x
Do you have an Intuit account?

Do you have an Intuit account?

You'll need to sign in or create an account to connect with an expert.

3 Replies
DianeW777
Employee Tax Expert

Relatives and Capital Gains

Yes, you are correct.  The rules of capital gain exclusion for the sale of your main home must occur within five years in your situation. It's necessary to show the time that it was your main home.  Below is a summary of the requirements for exclusion of gain on your main home sale.

 

Exclusion amount: If you meet certain conditions, you may exclude the first $250,000 of gain from the sale of your home from your income and avoid paying taxes on it. The exclusion is increased to $500,000 for a married couple filing jointly.

 

Key Eligibility Requirements: IRS Publication 523

  1. Do not change ownership of the home on the deed.
  2. Ownership: If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement. For a married couple filing jointly, only one spouse has to meet the ownership requirement.
  3. Use: If you owned the home and used it as your residence for at least 24 months of the previous 5 years, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period, and it doesn't have to be a single block of time. All that is required is a total of 24 months (730 days) of residence during the 5-year period. Unlike the ownership requirement, each spouse must meet the residence requirement individually for a married couple filing jointly to get the full exclusion.
  4. Look Back Period: If you didn't sell another home during the 2-year period before the date of sale (or, if you did sell another home during this period, but didn't take an exclusion of the gain earned from it), you meet the look-back requirement. You may take the exclusion only once during a 2-year period.
  5. Exceptions - May not apply to you and can be reviewed at the link above.

 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Hey_Rae
New Member

Relatives and Capital Gains

Hi! Thank you so much! 

Would it be possible for in the less than 3 year time frame required for us to sell her the house and use our equity as her home loan if you will? Aka - take her down payment in cash and then accept mortgage payments with an agreement that she will refinance at some point if/when the interest rates become reasonable again and pay off our "loan" to her. The interest rates are mainly what would make the place unaffordable to her right now. She will have a down payment because she needs to sell her current home in order to move back "home". 

DianeW777
Employee Tax Expert

Relatives and Capital Gains

Yes, it's possible. As long as you have a true mortgage prepared and the sale is recorded with the courthouse as with any regular sale.  A lawyer would need to be contacted for the exact legal advice and procedures for the seller being the mortgage holder.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
message box icon

Get more help

Ask questions and learn more about your taxes and finances.

Post your Question