Sale of Home with Co-Owner who did not split proceeds 50/50

[jahol]

Hello - I sold a house last year for which I was listed as Joint Tenant. My boyfriend had the mortgage solely in his name and came into the sale with a large down payment.

We bought the house for $430,000 and sold for $644,000. We lived there over two years. The mortgage company followed our instructions and cut me a check for $85,000 (half the profit minus realtor fees). Everything else went to him, towards a new house he bought in his name only. All separate bank accounts, taxes, etc.

Now I received a 1099-S showing half the gross sale even though I did not benefit from half the proceeds because they said it was a joint tenant title. Gross proceeds of $322,000 for each of us. How do I show I only got a small portion of this?

[Opus 17]

It's probably correct.

If you paid for the house equally, then your basis was $215,000.  Your selling proceeds are $322,000 and your capital gain is $107,000.  It doesn't matter how much cash you received, your gain is $107,000.  (If the reason you received less cash is that you had an outstanding mortgage, that just means you took money out of the house in advance via a mortgage loan--and didn't pay tax on it at the time, so part of your gain was taken out early.)

Since you owned and lived in the house more than 2 years, you qualify to exclude up to $250,000 of the gain from any tax.  Since you got a 1099-S, you must report the sale, but it should not be counted as taxable income if you report it correctly.

In fact, you can also reduce your capital gains by taking into account certain adjustments.  Certain closing costs raise your cost basis, and certain selling expenses lower the selling price.  This is discussed in publication 523.  But because your gain is already less than $250,000 without the adjustments, we don't really need to spend too much time analyzing them.

https://www.irs.gov/forms-pubs/about-publication-523

[jahol]

Thank you very much. I "credited" him the $180,000 he put down as a down payment as part of our splitting up since it wasn't my money to begin with, so he received a check for the $180,000 plus his $85,000 in "net" proceeds after the mortgage and realtor was paid, so his check was $265,000 to my $85,000. But I'll report this and not worry based on your answer. Thank you again!

[Opus 17]

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@jahol wrote:

Thank you very much. I "credited" him the $180,000 he put down as a down payment as part of our splitting up since it wasn't my money to begin with, so he received a check for the $180,000 plus his $85,000 in "net" proceeds after the mortgage and realtor was paid, so his check was $265,000 to my $85,000. But I'll report this and not worry based on your answer. Thank you again!

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The IRS will assume you owned the home 50/50 unless you have something in writing.  If you did not contribute to the downpayment, but you did contribute to the monthly payments, you owned some percentage of the home, but without an agreement in writing it will be very difficult to prove what percentage you owned.

Even if owned the home 99% and is responsible for 99% of the the capital gains, his capital gains would be less than his $250,000 exclusion, so the IRS can't even accuse him of avoiding taxes by assigning the wrong ownership percentage.  So there's no harm and no tax owed to either of you whether you report the ownership as 50/50 or something else.  But as I said, without some kind of written agreement, it would be very difficult to prove the ownership was not 50/50.

[gmlynaro]

CHAMP - an excellent and easy answer to understand it. Thank you also.