My 2nd house is my parents' primary residence. If we sell it, can we ask a closing agent to make the check payable solely to my mother to avoid any capital gain tax?

[Justin9]

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?

[Critter]

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.

[Justin9]

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.

[Opus 17]

Well the alternative is tax fraud.

[Justin9]

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.

[Critter]

"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/...>

[Justin9]

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.

[Justin9]

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.

[Justin9]

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"...>

According to it, multiple owners can divide up the profit any way they choose.

[Justin9]

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...>

[Justin9]

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?

[Justin9]

Also please see this:  <a rel="nofollow" target="_blank" href="http://bettyhunterinc.com/buyerseller-info/title-and-escrow-information/">http://bettyhunterinc.com/...>

>>> 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.

[Hal_Al]

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.

[Critter]

Good point Hal.

[TaxGuyBill]

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.