I sold my home to my daughter for $515K (appraised price) and bought another home. She financed $412K (I gifted almost all the equity to her). How do I enter this?

[DianeW777]

This will be reported as a sale of your home on your individual income tax return. And a gift tax return will be required as well.

On the individual return for you the cost basis will be what you paid for the house and the selling price will be $(unknown without more information). The gift of equity can be listed as a sales expense.  All other items on the settlement statement will be used on each return, such as prorated real estate taxes, and mortgage interest.  

Your daughter as the buyer may have points, if she can deduct those in the year of purchase as well. 

• Is the gain on the sale of my home taxable? (Also give instruction to enter the sale.)

Since the gift of equity is greater than $15,000 ($30,000 if you are married and able to use 'gift splitting') a gift tax return may need to be filed for you. This answer must be determined by consulting someone who specializes in gift tax returns. 

As indicated by our awesome Tax Champ @jtax there are other details that are important that you understand.

Once the actual selling price is known then there is a partial sale and partial gift. It is two separate transactions.

1. A sale of the home for you, the seller
2. A gift of the equity to your daughter

You will not owe a gift tax unless your lifetime giving exceeds $11.7 million for 2021.  However, if your gift to an individual during the the year exceeds $15,000 (unless gift splitting is involved) you have to report the gift by filing a gift tax return, Form 709.

• IRS FAQs Gift Tax

You might consider contacting a gift tax expert.

@MickieDBaca 

[Edited: 03/05/2022 | 12:33p PST]

[jtax]

What your daughter financed is not relevant. It just doesn't matter where she got the money she paid you -- a mortgage, investments, etc.

You have what's called a partial sale and partial gift.

The income tax rules for such gift/sales are here:

https://www.law.cornell.edu/cfr/text/26/1.1015-4

(the rules for a straight gift are at https://www.law.cornell.edu/cfr/text/26/1.1015-1)

Tell us a little more and we can help you more with the income tax consequences to you and to your daughter should she sell the property in the future. In particular:

1. What is your adjusted basis in the property? (I.e. what was your original purchase price plus and capital improvements - e.g. renovations, additions)
2. Have you owned and lived in the property for at least 2 of the last 5 years?
3. Did you own the house with your spouse? If so how ("joint tenancy" is the most common)? Is your spouse still living? If not what was the fair-market value of the home when your spouse passed?

BTW, getting an appraisal rather than just using the town's assessed value was very smart. An appraisal from a licensed appraiser will be much more reliable and will withstand scrutiny much better.

If the amount of equity you gifted to your daughter is more than the gift tax annual exclusion ($15k in 2021, $16k in 2022), then you will have to file a gift tax return (Form 709). If you are married you can usually double those amounts.  It would appear that your gift would be valued at $515k - $412k.  If the $412k included any fees/closing costs those would not count.  The gift is the fair-market-value of the house minus what your daughter paid to you.

Note that there is no actual gift-tax due until your total lifetime gifts exceed about $12 million. What happens is your From 709 gifts over $15k/$16k a year are totaled up when you die and added to everything you own at that time. If < $12 million there is no estate tax. The $12 million figure could change. It used to be $600k and is schedule to revert to $5.5M in 2026.

[AmeliesUncle]

For tax purposes, it looks like you might have sold the house for $412,000.

As for how to enter it, as jtax mentioned, we would need to know what your Adjusted Basis in the property was.

[jtax]

@AmeliesUncle we don't actually know the sales price was $412k. All we know is that was the financed amount. Some of that could have gone to closing costs. Or could be equity out (that "almost all" equity was gifted implies that some wasn't). 

So @MickieDBaca how much cash did you received from the sale? Do not include any seller/buyer adjustments for real estate or utilities or other expenses of the sale.

@DianeW777 I do not think the sales price was $515k. The seller/donor did not sell for 515k. The transaction is a partial sale and partial gift. It is two things.

1. A sale with proceeds of $412k (if that is the correct amount) and some basis in the hands of the seller/donor. 
2. A gift of the FMV - the proceeds (probably close to $515k-$412k). Gifts are not relevant for 1040 income except to establish basis in the hands of the donee for a subsequent sale.

If there is a 1099-S that shows 515k of gross proceeds then you do need to find a way to backout the gift part. While entering the gift as a sales expense would make the numbers right, that doesn't feel right. I'd look more carefully at the 8949 adjustments to see if something else made more sense.  (https://www.irs.gov/pub/irs-pdf/i8949.pdf page 8-10)

[AmeliesUncle]

---

@jtax wrote:

@AmeliesUncle we don't actually know the sales price was $412k.

I completely agree, but since $412 is exactly 80% of $515 (the 80% requirement to avoid PMI), I suspect it was actually $412.

[MickieDBaca]

My adjusted basis was just under $415k, and I paid $405k for the house.  And no, I only lived in it 21 months.  She and her husband had been trying to buy a house as they are expecting and kept getting outbid, so I sold her mine and bought a new one.  She used the equity as a down payment and paid enough to get the financed amount below 80% ($412k)so she didn't have to pay MI.  I took $25k of the equity so that I could use as a down payment to get below the jumbo loan amount for the house I bought.  

The closing docs say sales price was $515k.  So I included $78k (515k-412k-25k) as part of the cost basis so it showed I got the 25k.  It didn't seem to affect my overall tax, so I'm happy about that.  

The last house I owned I sold in 2016 and made no $ on it.  

No spouse but I do have a significant other who I've been with 20 years.  He's 12 years older than I and the stairs in the house became an issue and we really needed a single story.

The appraisal was required for my daughter to get her loan, so I can't take credit for that haha.

[jtax]

What do people think the daughter's basis is? See https://www.law.cornell.edu/cfr/text/26/1.1015-4

I am a little concerned about whether this could be 1) a partial-gift/partial sale transaction or 2) a sale followed by gift transaction. The difference is important. If a sale then it is a gain for you but your daughter has a higher basis.

What bothers me is the 1099-s/closing docs showing a $515k sales price. Especially if you ever  had possession (even for a moment) of the whole amount of gain. On the other hand, the IRS doesn’t respect multiple transactions that try to hide the ultimate effect of something (the step-transaction doctrine) so perhaps here it is the ultimate effect that matters. A volunteer forum cannot answer that for you. That is a question for your own tax attorney, CPA, or enrolled agent.

[Jsherron85]

Could you help with my gift of equity for taxes

Mom passed in 2019, brother and I inherited property. I have lived in home since 2020. My fiancé purchased property from us to mainly buyout my brother as banks don't like to loan on 50% ownership purchases.

Retrospective appraisal date of death 200k

Sales price was 280k

I gave 90k gift of equity and received 39k after closing expenses/sellers credits

My brother received 139k after closing and sellers credits. 

Both received 1099s with 140k proceeds. 

[RobertB4444]

You'll need to enter the $140K on your tax return.  Your basis in the property - or the price that you paid for it (technically) - is 100K which is half of the appraisal at your mother's date of death.  So you will owe tax on that 40K profit minus the costs of sale.  Your brother should do the same in order to pay tax on his proceeds from the sale.  

If you do not want your brother to be taxed on the proceeds then you will need to include the entire 280K sale on your tax return and pay taxes on the 80K in profit, less selling expenses.

For your brother you will need to file a gift tax return.  You are allowed to give away up to 13.61 million dollars in your life but without the gift tax return being filed the IRS will have no way to know that your brother does not owe any taxes on the amount that he received.  You would include the 90K in cash that you gave him as a gift as well as the $140K if you are including that on your tax return. 

TurboTax does not have form 709, which is a gift tax return, and the form can't currently be e-filed with the IRS so it will need to be mailed.  

Here is a link to the form.

@Jsherron85 

[Jsherron85]

The 90k gift of equity was to my fiance who purchased the property from me and my brother. Where does the 90k go on the 8949 so my proceeds show only receiving the 39k after closing fee/credits? 

[DaveF1006]

Yes, it sounds like you gave your fiancé a gift of equity so you could sell him the house for less than it's fair market value. While this was noble on your part, you cannot claim the gift of equity on your own personal tax return. However though, the $280K sale is less than what the house could have been sold for thus there is less of a capital gain to pay than there would have been if the house was sold at its Fair Market Value. 

In addition, you would need to file a 709 Gift Tax return for the amount of the gift over $18,000. 

When your fiancé decides to sell the house, his basis is now $280,000. This is relevant because if the market value of the house increases, he may be required to pay additional capital gains because the gift of equity effectively lowered his basis in the house from what it would have originally been based off of its Fair Market Value.

[Edited 02/22/25|8:15 am PST]

@Jsherron85