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Level 1

Partial owner home sale

Mom couldn't afford mortgage payments any longer, so brother and I started making her payments - split 50/50. Started splitting mortgage interest expense on our deductions every year 50/50 as well. Sold the house this last year and gave all profit to mom. Since we had been taking the interest deduction on our taxes for the last 7 years, should we report part of the sales profit as capital gain?
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Level 1

Partial owner home sale

No, you will not need to report on your tax return any profits from the sale. You are not part owners just because you pay the mortgage. You would actually have to be on the deed for you to be considered a partial owner of the property.

Additionally your parent can take the gain exclusion as long as you considered the home your "primary residence" for 2 of the last 5 years.  If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income. You may qualify to exclude up to $500,000 of that gain if you file a joint return with your spouse So if this home was used as a primary residence for your parent, there would be no reporting requirement if the gain is less than the exclusion amount.

See this IRS link for more information on the exclusion:

https://www.irs.gov/taxtopics/tc701.html

However, if you are on the deed (because a portion of the house was gifted to you) and this was not your primary residence, you would have to report any gain on the sale as the gain on the sale of a capital asset (You do not report a loss on the sale of a personal capital asset). You would only need to report the gain on your percentage of the house.

 To enter this transaction in TurboTax Online or Desktop, please follow these steps:

  1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
  2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
  3. Next click on “I’ll choose what I work on”
  4. Scroll down the screen until to come to the section “Investment Income”
  5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section) (see Screenshot #1)
  6. The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
  7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
  8. Choose type of investment you sold - select everything else
  9. Some basic information:
      1. Description –  Usually the address of the property sold
      2. Sales Proceeds – Your net proceeds from the sale
      3. Date Sold – Date you sold the property
  10. Tell us how you acquired the property - purchased
  11. Enter the your cost basis- cost plus capital improvements less any depreciation deducted or allowable as a deduction less any casualty losses take on the property.
  12. Date acquired - Date of acquistion
  13. If you had a loss, on the question of "Did you use this property for business or investment?" If the property was not used for any personal use, you will answer that this was for investment. Otherwise, you will not be able to deduct the capital loss of a personal use capital asset.
  14. Click this link for further information about reporting the sale of a capital asset


6 Replies
Level 1

Partial owner home sale

No, you will not need to report on your tax return any profits from the sale. You are not part owners just because you pay the mortgage. You would actually have to be on the deed for you to be considered a partial owner of the property.

Additionally your parent can take the gain exclusion as long as you considered the home your "primary residence" for 2 of the last 5 years.  If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income. You may qualify to exclude up to $500,000 of that gain if you file a joint return with your spouse So if this home was used as a primary residence for your parent, there would be no reporting requirement if the gain is less than the exclusion amount.

See this IRS link for more information on the exclusion:

https://www.irs.gov/taxtopics/tc701.html

However, if you are on the deed (because a portion of the house was gifted to you) and this was not your primary residence, you would have to report any gain on the sale as the gain on the sale of a capital asset (You do not report a loss on the sale of a personal capital asset). You would only need to report the gain on your percentage of the house.

 To enter this transaction in TurboTax Online or Desktop, please follow these steps:

  1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
  2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
  3. Next click on “I’ll choose what I work on”
  4. Scroll down the screen until to come to the section “Investment Income”
  5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section) (see Screenshot #1)
  6. The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
  7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
  8. Choose type of investment you sold - select everything else
  9. Some basic information:
      1. Description –  Usually the address of the property sold
      2. Sales Proceeds – Your net proceeds from the sale
      3. Date Sold – Date you sold the property
  10. Tell us how you acquired the property - purchased
  11. Enter the your cost basis- cost plus capital improvements less any depreciation deducted or allowable as a deduction less any casualty losses take on the property.
  12. Date acquired - Date of acquistion
  13. If you had a loss, on the question of "Did you use this property for business or investment?" If the property was not used for any personal use, you will answer that this was for investment. Otherwise, you will not be able to deduct the capital loss of a personal use capital asset.
  14. Click this link for further information about reporting the sale of a capital asset


Level 1

Partial owner home sale

We did a refinance for the house in 2008 that put all 3 parties on the mortgage (that's the only way the mortgage co would do it) but mom was the only one that ever lived in the house, so neither my brother or I can say it was our primary residence.
Level 1

Partial owner home sale

If you are just listed on the mortgage, it doesn't mean you actually became part owners. Unless your names are on the actual deed, you will not be considered owners and if she qualifies for the exclusion then no reporting of the gain on sale is required.
Level 5

Partial owner home sale

Have a similar situation and need to confirm ownership percentage

 

Myself, my mother and her husband all on deed as joint tenants. I believe this means we own 1/3 each. Property is primary home for my mother and her husband. I do not live in the property.

 

My mother's husband executed a interspousal transfer deed to remove his name from the deed (Medicaid preparation). It was signed between them and I am not a party to this transfer document. I'm assuming after this, my mother and I are joint tenants. However, she owns 2/3 and I own 1/3. Is this understanding correct?

 

We plan to sell the property soon and ownership % would determine how much tax each of us pay. She and her husband does qualify for the $500k primary home exemption.

Level 20

Partial owner home sale

"....Medicaid preparation.."

 

@howardc642 I am not going to comment on your tax situation regarding the house.  But I am going to advise you to seek the advice of an elder law attorney.  Are you aware that there is a five year lookback for the disposal of assets when a person goes on Medicaid?  So your plan to sign the house out of your mother's spouse's name may end up biting them and/or you.  Please seek legal advice before you proceed.

Level 5

Partial owner home sale

Thanks for the comment. The inter-spousal transfer was done per direction from well experienced elder law attorney (On advisory committee with WA state Medicaid office).  WA Medicaid law follows the federal law that married couple can gift infinite amount of asset t to each other and does not fall under the 5 year look back rule. This enable the first spouse to go onto Medicaid while sheltering the asset for the 2nd spouse's use. Of course when its time for the 2nd spouse seeking Medicaid long term care, they can not shelter the asset via spouse.

 

Of course Medicaid rules are somewhat different for every state so definitely consult elder law attorney for the state in question.