In 2014 we sold our lake home to our oldest son and invested the proceeds. In 2018 we used some investment money as a down payment on a new home. Would this be taxable?

[DoninGA]

If the investment sale was for a profit then you may have capital gains taxes assessed on the sale.

What you did with the funds from the sale is not relevant.

[rjs]

I'm not sure what you are asking, or why you are asking now, in 2022, about transactions that took place in 2014 and 2018.

It seems that you had four transactions:

• In 2014, sold the lake home.
• In 2014, purchased an investment.
• In 2018, sold an investment.
• In 2018, purchased a new home.

Your question is "Would this be taxable?" What is "this" that you are asking about? Purchases are not taxable and are not reported on your tax return. The sales of the lake home in 2014 and the investment in 2018 had to be reported on your tax return for the year of the sale, whether you had a profit or a loss on the sale. If you had a profit on the sale, you would have to pay tax on the profit.

If you have not yet filed your tax returns for 2014 or 2018, they are obviously very late. If you owe tax for either year, you will have to pay penalties and interest in addition to the tax that you owe. The sooner you file, the less you will have to pay.

[Hal_Al]

If you sold the lake home for the the amount you paid for it (there was no capital gain), it is OK if you did not report the sale on your 2014 tax return.

If you sold it for more than your cost basis (and it was not your primary home), you should have reported the gain.

If you sold it for less than your cost basis, you were not allowed to claim a capital loss, since it was sold to family. So, again, it ws OK not to report it on your tax return.  Your son's cost basis, in that case, is a little tricky.  Reply back for details, if needed. 

[Mike9241]

@drmessner1248-gm if the 2014 sales price was below market value then you made a gift to your son for the difference. I don't know the filing threshold for gift tax returns back in 2014 but you may have been required to file them. 

[rjs]

For 2014 you had to file a gift tax return if you gave a gift of more than $14,000. You would not have to pay any gift tax unless your total lifetime gifts to everyone were more than $5,340,000 (as of 2014), but you have to file the return. The gift reduces your lifetime gift and estate tax exclusion.

[drmessner1248-gm]

I am sorry for not explaining my problem correctly.  My 2014 taxes were still being handled by my accountant and all is well there.  My issue is my 2018 taxes which was one of my first years using Turbotax.

We had invested the equity from our home sale in 2014 into a short term investment knowing we would be using this money to purchase another home. We retired in 2016 and did purchase a new home in 2018 and I asked our financial adviser to take out money to use as a down payment. Not sure where the communication went wrong but I thought he was using our money from our home sale in 2014 but instead he took money from our IRA's?

My mistake was not including that money when filing our 2018 taxes because I thought it was our cash from the sale. So now the IRS and State of MN are after me for not showing this money as income and paying the appropriate taxes.

I am asking if there is anything I can do to resolve this being i used the money as a down payment 4 years after selling our lake home? My wife and I are in our 70`s, retired and on a fixed budget.

[Opus 17]

@drmessner1248-gm 

There are no special rules that would allow you to avoid paying income tax on money that you took out of an IRA, or income from selling investments, just because you used the money to purchase a home.

There was an old rule that you could defer taxes on the capital gain from selling your personal residence if you invested the money in a new personal residence within two years, but that rule was eliminated in 1997, so it would not have applied to the 2014 sale of your home.

If you met the IRS definition of a “first time home buyer“ in 2018, and you withdrew money from an IRA to make the down payment, you could have avoided the 10% penalty for early withdrawal if you were under age 59 1/2.  If you were over age 59 1/2 in 2018 and we’re not assessed the 10% penalty anyway, then the first time homebuyer rule is irrelevant in your situation.

Wherever the money came from in 2018, either withdrawing from an IRA or multiple IRAs, or selling other investments, you would have received a tax statement; either a 1099-R for retirement account withdrawals or a 1099-B for the sale of stocks or other investments through a broker.  The income should have been reported on your tax return.

interestingly, the normal IRS statute of limitations is three years. If you filed your 2018 return on time, the statute of limitations would have expired April 15, 2022.  That would mean that unless the IRS notified you of the deficiency before April 15, 2022, you are not liable for your mistake.  However, in some cases the statute of limitations is extended to six years, or you might have filed your 2018 return late which would also extend the statute of limitations. Either way, you may want to engage the services of a tax professional who can help you ensure that your taxes were prepared correctly, navigate the statute of limitation issue, and negotiate with the IRS over any penalties or interest that may be required.