Sale of home by myself & wife & daughter as co owners

[tomjn02]

My wife and I purchased a second home, which we never lived in and put our daughter on the deed so she could live there.  She did not pay any of the original buyer fees.  She lived there for the required 2 years.  When we sell does she have to report the sale and claim any profit. or can we just report it and claim the full amount?

I know we pay Capital gains, but would she be taxed on the profit?

[TomD8 · Accepted solution]

She would owe capital gains tax on her share of the capital gain from the sale; however she would qualify for the capital gain exclusion if she was both a co-owner and lived in the home as her primary residence for at least two of the five years leading up to the date of sale.  The capital gain exclusion is $250,000 if she files as Single; $500,000 if she files a joint return.

Her share is based on her ownership percentage, which is normally recorded on the deed.  Since she received her share as a gift, her cost basis would be her share of your adjusted cost basis.  

The capital gain is the net sale proceeds (sale price minus any commissions or fees paid) minus the adjusted cost basis of the property (original purchase price plus any capital improvements made to the property).