Second home, I think? explained below Military

[Silva878]

Hello All!

I'll keep this brief and straightforward.

In 2020, my wife and I, both military personnel, purchased a house in Washington and We're selling it this March 2024 due to a PCS near st louis due to the military.

My primary concern is regarding my mother's situation: She bought a house in 2021, valued at around $390K, and is now selling it for $450K. To secure the loan, she needed both me and my wife's income, so we are both on the title/loan because if anything happened she wanted us to inherit it.  

Once she sells this home, will my wife and I owe taxes on it, given that technically, it's a second home even though my mom lived there throughout?

Also, do we only owe on the 60K difference between purchase and sell price. Thats how i am reading the rule.. but not entirely sure

My mom will be following us and plans to buy a home near us again.

1. Question: Does my wife and i owe taxes on the property? 

2. Question: Since my mom is one of the borrowers, she shouldnt have to claim anything different on taxes since its her only home/title?

3. Question: taxes on 60K correct? if it sells at 450K

[DMarkM1]

Typically, the tax burden is split according to the ascertainable ownership interest in the property.  Your ownership interest may be negligible or for tax purposes, zero.  

If you did not make any part of the down payment or any of the loan payments or live in the home, or pay for any part of improvements and there is nothing in the ownership documents specifying your ownership interest and also assuming you did not take any mortgage interest deduction or property tax deductions for the property, then your part of the capital gains would be zero.  In that case basically, your mom had all the benefits and responsibilities for the property.   

Yes, your mom would report all of the sale on her taxes and if eligible claim the $250,000 exemption available as an owner of the property for at least 2 years of the last 5 years prior to the sale and who also lived in the property for at least 2 years prior to the sale.  That exemption would more than cover the $60,000 gain.    

Yes, the gains are basically the difference in the sales price and the purchase price.

[Silva878]

Thank you! Perfect