My mother and I are both on the title of my second house.
I pay all the mortgage on the second house; my parents live there for free.
Although I cannot exclude the profit from my capital gain tax, if my mother files tax jointly, she can excluded up to $500,000, correct? Then, as long as the profit falls under $500,000, can she claim 100% of the profit and me 0%? If so, then all of our capital gain taxes would be $0, right?
A gift is only taxable if the giver has gifted more than $5.4 million during their lifetime. This is the amount of the lifetime gift and estate tax exclusion. And there is some talk about eliminating the estate tax altogether in the current tax reform plan. Unless you have given more than the exclusion limit, the gift must be reported but no tax is actually owed.
If you are the part owner of the property when it is sold, and the IRS figures out what you are doing, they will assume that you are a 50-50 owner and that you are responsible for the capital gains tax on 50% of the gain. Your mother can exclude tax on her 50% of the gain, but you cannot exclude tax on your gain. Simply directing that the check be made out entirely to your mother might impede the ability of the IRS to detect what is going on, assuming that the closing agent goes along with it, but it does not make it legal. And you may find that the closing agent will refuse to go along with it.
If you quit claim deed your share of the home to your mother before the sale, then your mother is entitled to a $250,000 exclusion, and if she files jointly with a spouse, they are entitled to a $500,000 exclusion even if his name is not on the title.
You may want to discuss this with an attorney or tax advisor. But what it sounds like you are planning on doing is likely to be viewed by the IRS as fraud if they catch you.
What you need to do is get your name off the title before the closing ... talk to a real estate lawyer to get it done.
I don't think getting my name off the title would work. If I file a quitclaim, then it would be considered as a gift, in which case would be taxable over $14,000.
I am not going to commit a tax fraud.
I searched the web and I cannot find anywhere that the profit must be divided equally. In fact, I found a website that implies that it's up to multiple owners to divide up the profit among themselves. I just want to get a second verification that it is an acceptable practice.
"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.
You will have to file a gift tax return to report the gifts, but you will not actually have to pay any gift tax unless you have made gifts totaling over $5.45 million over your lifetime.
A gift tax return is separate from income tax. It does not go on her income tax return. TurboTax cannot be used to prepare a gift tax return.
See <a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/INF12127.html">https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/INF12127.html</a>
Opus 17, with all due respect, I think you are mistaken. First, there is $14,000 annual gift limit.
Second, please provide a reference where owners must divide up 50-50.
Critter#2, thank you for the reference. From a quick glance, it does sound like all I have to do is file a quitclaim on the title. I will read up on it more.
Meanwhile, please see this link: <a rel="nofollow" target="_blank" href="https://www.trulia.com/voices/Home_Selling/If_there_are_multiple_owners_of_a_property_and_we-400587">https://www.trulia.com/voices/Home_Selling/If_there_are_multiple_owners_of_a_property_and_we-400587</a>
According to it, multiple owners can divide up the profit any way they choose.
Opus 17 and Critter #2, thank you both for your advice! You are correct about the lifetime $5.4 million gift exemption.
Also found this that affirms the $5.4 million exemption: <a rel="nofollow" target="_blank" href="https://www.irs.com/articles/7-things-you-should-know-about-gift-tax">https://www.irs.com/articles/7-things-you-should-know-about-gift-tax</a>
Although I can file a quitclaim on the title to address the issue, it would be nicer if I don't have to do anything, and simply ask a closing agent to make the check payable solely to my mother.
Can anyone verify that the 100% profit can go to my mother and 0% to me please?
Also please see this: <a rel="nofollow" target="_blank" href="http://bettyhunterinc.com/buyerseller-info/title-and-escrow-information/">http://bettyhunterinc.com/buyerseller-info/title-and-escrow-information/</a>
>>> How is the sale reported when there is more than one seller involved or when multiple sellers do not own equal interests in the property?
>>> Multiple sellers may allocate the gross proceeds among themselves for purposes of reporting.
It sounds like multiple owners can divide up the profit in any way they desire.
I would appreciate it if someone more knowledgeable on the topic verifies it, or if someone can find a a more authoritative source that says the same thing. Thank you in advance.
You can divide up the proceeds any way you want. But your reference doesn't address the issue of who pays tax on the capital gain (profit).
You are the legal owner of half the property. The capital gain is yours. If you elect to gift your half to the other person, that does not transfer the tax liability.
I'll go a little further than Critter#2 and say you can't just quit claim your half to her prior to sale. She will need to own your half for two years to claim capital gains exclusion.
This is not my area of expertise, but it may depend on HOW the title is held. Is it held as "joint tenants" or a "tenants in common"?
If I remember correctly (which isn't necessarily the case), if it is held "tenants in common", you both legally own 50% of the property (or whatever other percentage the title says). The sale would be required to be reported 50/50. If the title was transferred 100% to the parent, then the parent MIGHT need to own that half for the required time (I would need to research that).
If the property was held as "Joint Tenants", you each own 100% of the property. If your mother receives (AND KEEPS) the sales proceeds, you may be able to allocate it all to her. If you paid for the property, you might need to file a Gift Tax return for effectively giving her the property. HOWEVER, if your mother receives the money and just gives it back to you, it is a illegal tax-avoidance scheme, and the sale should be reported on your tax return, not your mothers.
This web reference explains the differences between Joint Tenancy, Tenants in Common, and Tenancy by the Entirety. With Joint Tenancy, the IRS regards each tenant as owning 50% of the property. <a rel="nofollow" target="_blank" href="http://taxes.lovetoknow.com/tax-tips-joint-home-ownership">http://taxes.lovetoknow.com/tax-tips-joint-home-ownership</a>
So, if the deed is held as Tenants in Common; the poster can do what he wants; have the closing agent make the check payable to Mom. Mom takes a full home sale exclusion, and nobody pays capital gains tax.
If the property is titled as Joint tenants, poster reports half the capital gain on his return and Mom excludes her half as the sale of her primary residence
The point is that for joint tenants, you each own half. If all the proceeds go to your mom, that is treated as if you sold your half and then gifted her the money afterwards. You still owe the gains tax because the gain is yours.
I also agree that if the home is held as joint tenants and you give your interest in the property to your mother, she will have to pay the gains tax on half the gain unless she owns both halves for 2 years.
You need to research how your deed is written.
Which comes back to my original statement ... seek professional help from an income tax pro or a RE attorney.
Dear Justin, did you finally get an answer to your original question? Please update!
Did you end up quit claiming or gifting your portion to your mother before the sale? Did you have to report the capital gains tax on your 50% of the gain even though you quit claimed/gifted all to mom?
OP is not likely to be coming back on this board after 2 years.
A gift is only taxable if the giver has gifted more than $5.4 million during their lifetime. This is the amount of the lifetime gift and estate tax exclusion. And there is some talk about eliminating the estate tax altogether in the current tax reform plan. Unless you have given more than the exclusion limit, the gift must be reported but no tax is actually owed.
If you are the part owner of the property when it is sold, and the IRS figures out what you are doing, they will assume that you are a 50-50 owner and that you are responsible for the capital gains tax on 50% of the gain. Your mother can exclude tax on her 50% of the gain, but you cannot exclude tax on your gain. Simply directing that the check be made out entirely to your mother might impede the ability of the IRS to detect what is going on, assuming that the closing agent goes along with it, but it does not make it legal. And you may find that the closing agent will refuse to go along with it.
If you quit claim deed your share of the home to your mother before the sale, then your mother is entitled to a $250,000 exclusion, and if she files jointly with a spouse, they are entitled to a $500,000 exclusion even if his name is not on the title.
You may want to discuss this with an attorney or tax advisor. But what it sounds like you are planning on doing is likely to be viewed by the IRS as fraud if they catch you.