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bspanglr
New Member

Where do I show that we gave a "gift of equity" on the sale of a second home?

 
3 Replies
ScruffyCurmudgeon
Level 7

Where do I show that we gave a "gift of equity" on the sale of a second home?

A Gift in and of itself has no income tax implications

Several points to consider in regard to giving money to a child or grandchild or anyone else.

  1. Gifts made for whatever purpose, in and of themselves, never create an income tax liability for the recipient nor the donor and do not provide for any deduction of taxes owed by the donor.

  2. If one person (such as you alone) gives more than $15,000 in cash of value in kind, such as would be the case here it seems, in one year directly to one other person (such as your grandchild), then you have created the need to file in that year and every succesive year a Form 709 Gift Return (not part of the Income Tax system, not supported by TurboTax).

  3. Please explain what you actually did when you say "Gift of equity" - are you saying that you sold the home at a discount against Fair Market Value?

  4. If you gave part ownership to someone of a home, and that home will be used by the recipient as a personal residence, the future computation of whether or not gain is to be realized at the time of that future sale is made more complex because the cost basis computation itself will be complex.
Scruffy Curmudgeon--PFFM/ IAFF, Locals 718/30, retired firefighter/medic; univ faculty NOT INTUIT EMPLOYEE
- Strategy & Quantitative Methods Med-M&M, Law discriminatory statistics, Med & PH - epidemiology statistics;
USAR 64-67 AIS/ASA MOS 9301 - O3
-------------------------------------------------------
-------------------------------------No Not an Intuit Employee - Just donating my time
bspanglr
New Member

Where do I show that we gave a "gift of equity" on the sale of a second home?

Thank you.  We sold a home to our son and his family for their personal residence.  The sale price of the home was market value because we gave him a gift of equity.  Can the gift of equity be an expense of selling the home so that we do not have a gain?  And, of course, we will also fill our the For 709 Gift Return.

And when he sells the home, do you know if his basis be less the gift of equity?
ScruffyCurmudgeon
Level 7

Where do I show that we gave a "gift of equity" on the sale of a second home?

What you mean by a "Gift of Equity" is that 

  1. You stated the purchase price at FMV, 
  2. You executed a Gift of Equity letter so that the recipient (your son and daughter-in-law)  could obtain a mortgage with the face value of the property (appraised or otherwise determined) even though the effective sale price was less.
  3. The cost basis will be that which was documented on the deed and on the land court or registry of deeds - that is, the agreed upon FMV or appraisal. That is because you did not "gift" the house but sold it so the original cost basis is not relevant to your son and daughter-in-law.
  4. As for the Gift being construed as an expense of sale, not at all -
    1. You effectively gave a gift of cash or in kind to your son, and likely your daughter-in-law so this is not an expense
    2. The transaction was between related parties.
    3. This is a Gift and that is all it is.
    4. Your capital gain before any allowable exclusion, which may be the maximum of $500,000, will be based on the publicly stated sale price, less any true expenses of making the house ready for sale or so-call fixup expenses.

Remember that in 2018, you and your spouse (two people) can give without Gift Tax (Form 709) requirements a total of $15,000 per recipient per donor.  That means, the total excludable gift as it would be reported on Form 709 the amount of 2*2*$15,000 or $60,000.  Form 709 will be required if the total gift exceeded this amount, and then you must also report as excludable the $60,000 - not as liable for Gift Tax but the form requires reporting of excluded amounts.

Scruffy Curmudgeon--PFFM/ IAFF, Locals 718/30, retired firefighter/medic; univ faculty NOT INTUIT EMPLOYEE
- Strategy & Quantitative Methods Med-M&M, Law discriminatory statistics, Med & PH - epidemiology statistics;
USAR 64-67 AIS/ASA MOS 9301 - O3
-------------------------------------------------------
-------------------------------------No Not an Intuit Employee - Just donating my time
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