@LynnL419 wrote:
I've read through all of these threads but I am still confused. I purchased a house in March to redo for my daughter and son-in-law. I purchased the house for $230 and put $90 into it so my overall investment into this home is $320. I want to sell it to my daughter and son-in-law for $320. I know that I can gift them $14,000 each ($28,000) without having to do any forms for the IRS but if I gift them the equity in the house (the houses FMV is around $380 but I am only gifting them $28,000) when I receive my 1099 for taxes I know it will show the selling price as $348,000. Will I have to pay capital gains on the $28,000?
Capital gain on this transaction and gift tax issues are completely separate components.
You will have a capital gain to the extent the sale price exceeds your purported basis of $320,000.
However, if you sell it to your daughter and son-in-law for $320,000 when the FMV is $380,000, you will have made a gift of $60,000 (difference between fair market value, $380,000 and the selling price, $320,000). Although you will likely owe no gift tax (the exemption is $11.4 million for 2019), you will have to file a gift tax return (Form 709), which you will probably want to avoid.
In short, you would benefit from estate planning advice from an experienced professional. For one thing, the annual gift tax exclusion for 2019 is $15,000, so you could gift them a total of $30,000 this year. For 2020, the exclusion should be at least $15,000 so you could gift a total, again, of $30,000 on January 1, 2020. That covers the entire $60,000 that you would be gifting (of equity). So, you could consider gifting $30,000 (cash) this year, and then closing on the property early in 2020.
Again, it would be wise to consult an estate planning professional.
