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bsme
New Member

2nd home sold with gift of equity

We had a 2nd home that a family was living in.  We did not charge rent. We sold it at a value over what we purchased it, however gifted the full allowable amount of equity.  Because of the gift of equity, the amount we received was less than what we purchased the home for.  What do I need to report and how do I do it?

1 Reply
DS30
New Member

2nd home sold with gift of equity

Unfortunately, the IRS does not allow a capital loss on the sale of personal use property. This rule applies to the sale of a vacation/second home that was a personal use property.

However, if you actually had a gain on the sale but gifted a portion of the equity, you would still have to report the capital gain on the sale before the gift and pay taxes on any capital gain. The gift may require a separate tax return filing on Form 709. (If this gift was to a charitable donation to a registered charity, you may be allowed a Schedule A donation deduction)

Click this link for further information about reporting the sale of a capital asset

  • To enter this transaction in TurboTax, log into your tax return and type "investment income (gains and losses)" in the search bar then select "jump to investment income (gains and losses)". TurboTax will guide you in entering this information (see step 6 below) 

Alternatively, To enter this transaction in TurboTax Online or Desktop, please follow these steps:

  1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
  2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
  3. Next click on “I’ll choose what I work on” (jump to full list)
  4. Scroll down the screen until to come to the section “Investment Income”
  5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section) (see Screenshot #1)
  6. The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
  7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
  8. Choose type of investment you sold - select Second Home
  9. Some basic information:
    1. Description –  Usually the address of the property sold
    2. Sales Proceeds – Net proceeds from the sale 
    3. Date Sold – Date you sold the property
  10. Tell us how you acquired the property - purchased
  11. Any business or rental use? - if no, then select personal use only
  12. Some Basis information
    1. Date Acquired
    2. Original cost basis
    3. Cost of improvements

The fact that you gifted a portion of the equity in this transaction may require you to file a separate gift tax return (Form 709). Here is a link for more information about the filing requirements for a gift tax return:

https://www.irs.gov/instructions/i709/ch01.html


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