Capital gains when not on title

[leslie35]

I was with my partner for 15 years, bought a home in 2018 and am selling it now. Due to weird circumstances, I was never on the title. When we sell the home and split the gains, he can take the capital gains exclusion as the owner. What happens to me with the money I receive? Can I also benefit from the exclusion? Does the money I make count as something else? 

[tagteam]

The deed is typically going to control in this instance unless you have some other sort of written (and most likely notarization would be required) instrument documenting your ownership (or share of ownership).

[pk]

@leslie35  agreeing with my colleague @tagteam ,  you used the term "partner" .   If you live in a state that allows common law recognition of marriage ( i.e.  you two hold  yourselves  as "married" for all intents and purposes  and  file jointly ) then you may have a little more leeway. A bit contentious though.  Else in order to  satisfy ownership clause you may have to resort to much paperwork and meet the equitable ownership demonstration.

You may get some benefit from discussing your case with a tax attorney.

That is my three cents.

[Hal_Al]

Q.  Can I also benefit from the exclusion?

A. No. You must have owned and lived in the home for 2 out of the last five years to qualify.

Q. Does the money I make count as something else? 

A. Yes.  You may get more than one opinion on how it should be treated:

1. The gain is interest on the "loan" you provided to your partner, and is reported as interest income. 

2.  The gain is a long term capital gain on your "investment" and is reported as such.  This reduces your partner's qualifying capital gain for the exclusion.

3. The gain is a gift from your partner and he/she needs to file a gift tax return* (separate from an income tax return).  You do not need to report anything.

I'm of the opinion, it's  probably #1 (a loan).  But, as others have said, a consult with a lawyer or tax professional may  be appropriate.  

*"Gift Tax" is somewhat of a misnomer.  Even though a gift tax return may be required, very few people ever actually pay federal gift tax. The purpose of the gift tax return is usually only to document a reduction in the allowable estate tax exemption.
See https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/...   For 2024 the annual exclusion is $18,000.  

[Opus 17]

Marriage imparts ownership, for tax purposes.  If you were married, then only one spouse needs to be on the title, even if the home is sold after the divorce. 

If you were never married under any theory (registered or common law), then the home only belongs to the titled owner.  In most cases, only the owner reports the sale and takes the exclusion.  You probably have nothing to report on your return and you may not even have legal claim to any money.  If you are breaking up your partnership, then your share might considered the same as a distribution due to a divorce (but that depends on the laws of your state), or it might be a gift from your partner to you.

I think you need professional legal/tax advice.