Tax Year Prior to 2020: How should I report taxes on joint owners' house sale?

[tdhham1958]

thanks!

[dorinagar]

I have a situation where I was on the deed as joint owner of a condo where my father lived since 2009. I never lived there and did not contribute to maintenance or property taxes. We sold it in 2022 and my father kept all the proceeds.  I received a 1099-S from the title company for half the proceeds. Do I reflect half the sale on my tax return or somehow assign the 1099-S to my father? If I reflect half the sale on my tax return do I get half the benefit of the exclusion for principal residence of my father?

[JosephS1]

Since you did not receive any of the proceeds of this sale, it can definitely be argued that you are considered a "Nominee" for the purposes of this sale.  The actual treatment that should have occurred for you to be filed as a nominee is currently both late and very soon but you can still file the forms you need to for nominee status.

In the case of a nominee for Form 1099-S, you need to file Form 1096 and 1099-S with the Internal Revenue Service.  You also needed to submit Form 1099-S to your father for the amount shown on your 1099-S by February 15, 2023.  Detailed instructions of whom to place as payer, filer, recipient, etc., are included in the instructional link below.  The submission to the IRS of the 1096 and 1099-S needs to be made by February 28, 2023.

You have little time to complete this.  While I cannot say for certain, the closing agency should have made you aware of what was going to and what needed to be transpired for full disclosure.

As an alternative, and depending on your relationship with your father, ask if you can use the information that your father will show as to the sale of the condo for his half of the sale.  Since you did not live there you would not qualify for the sale of personal residence exclusion and the sale will possibly show a capital gain.  You can calculate what the gain will cost you in extra tax and ask for reimbursement since he kept all the proceeds.

TurboTax FAQ on similar problem

Form 1096

Form 1099-S

1099 Instructions

 @dorinagar 

[dorinagar]

Thanks for the reply. The title company did not disclose this to us and it doesn't surprise me.  I will try the 1096 and 1099S route since the gain is over $50,000 and my half would be taxable while my father would include the total gain and he get's the personal residence exclusion. The risk is that the 1096 is late and the IRS will reject it but it is worth a try.

Thanks again.

[wrb1000]

I have a variation on this.  My daughter purchased a house with her fiancee.  The fiancee decided to break off the engagement and they sold the house before two years. He paid the majority of the expenses but and was compensated for it, but my daughter received her portion of the appreciation on the house.  My question is - can the dissolution of their engagement be considered an 'unforeseen' event in order to get the exclusion?

[TomK2023]

Maybe.  The IRS defines an "unforeseen event" as follows:

You meet the standard requirements if any of the following events occurred during the time you owned and lived in the home you sold. 

• Your home was destroyed or condemned. 

• Your home suffered a casualty loss because of a natural or man-made disaster or an act of terrorism. (It doesn’t matter whether the loss is deductible on your tax return.) 

• You, your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence: 

1. Died; 

2. Became divorced or legally separated, or were issued a separate decree to pay maintenance (support) to the other spouse; 

3. Gave birth to two or more children from the same pregnancy; 

4. Became eligible for unemployment compensation;

5. Became unable, because of a change in employment status, to pay basic living expenses for the household (including expenses for food, clothing, housing, medication, transportation, taxes, court-ordered payments, and expenses reasonably necessary for making an income). 

6. An event is determined to be an unforeseeable event in IRS published guidance

In addition, there may be other facts and circumstances to consider.

Even if your situation doesn’t match any of the standard requirements described above, you still may qualify for an exception. You may qualify if you can demonstrate the primary reason for sale, based on facts and circumstances, is work related, health related, or unforeseeable. Important factors are: 

• The situation causing the sale arose during the time you owned and used your property as your residence

• You sold your home not long after the situation arose.

• You couldn’t have reasonably anticipated the situation when you bought the home. 

• You began to experience significant financial difficulty maintaining the home.

• The home became significantly less suitable as a main home for you and your family for a specific reason.

IRS Publication 523: Selling Your Home  (pages 6 & 7)

@wrb1000

[wrb1000]

Hey Tom,

Well:

1) They both lived there.

2) The situation causing the sale arose during the time they owned and used the property as residence

3)  They sold the home not long after the situation arose.

4) She couldn’t have reasonably anticipated the situation when they bought the home. 

5) She would have experienced significant financial difficulty maintaining the home if she had <the ability> to buy him out.

So on the surface, it appears to hold some valid reasons.  Surprised that we're breaking new ground on this one.

[bjrcol1]

My husband and I sold our primary residence in 2022. A portion (8.58%) was used by me as a home office from 2007-2021. During that period the straight depreciation method was used (8.58%) to calculate depreciation. Do I have to include the sale of the home on our 2022 taxes to reflect the amount of depreciation ($7597)?  Turbo Tax asks whether we wish to include the sale of the house. I'm not certain whether I should respond yes or no.  

[ThomasM125]

If the office was inside of your home, in a bedroom for instance, then a portion of the gain on sale of the house does not need to be allocated to the office. You treat the sale as if you never had a home office. If the office is detached from the house, then you need to allocate a portion of the home sale to the office and recapture the deprecation taken on the office to the extent you have a gain on sale of the house.

You should report the sale of the house in TurboTax to make sure it qualfies for special tax treatment with regard to the $250,000 or $500,000 exemption on sale or your primary residence.