Form 709

[magicjack916]

My wife and I made a gift of equity and sold our house to my son and daughter-in-law. We purchased the home for $612,000 and made $25,971 in improvements for a total of $637,971. At the time of dale the home was appraised at $850,000. We sold it to them for $750,000. 

On Form 709 Schedule A Column (e) is the adjusted basis $637,971 or $750,000 ? 

On Column 709 Schedule A Column (g) $750,000 or $850,000 ?

Do we need to report the gift donee's separately or since they are married can we just enter both their names together ?

Thank you

Rich

[Hi Palms]

You each made a gift of equity of jointly owned property to two separate people....half to your son and half to your daughter-in-law if they're both on the deed with equal shares.

The 709 has to list each one of them because the transfer was to more than one person. So, you'd have a one line with your son as donee and another with your daughter-in-law as donee.....you can't put them both on the same line in Schedule A.

[Hi Palms]

Best way to handle this, IMHO, is you each file a 709 for 1/2 of what you gave, which was a gift of equity of $100,000 ($850,000 FMV less $750,000 received from son and daughter-in-law).

You enter each one separately as donee on Schedule A using a basis of $0 and a gift of $25,000 (FMV) to each. Your wife files the SAME way. The total for both of you will then equal the $100,000 gift of equity. 

If you try to do this with the adjusted basis of the house and FMV, you won't be able to get the numbers to come out right on the 709. You SHOULD include a statement explaining the transaction so there's no confusion. For the description on Schedule A you can put something like "Gift of Equity - See Statement". 

Update: I would also make 10000% sure the house is actually worth $850,000! Note that  you and your wife can give your son and daughter-in-law up to $72,000 total for 2024 WITHOUT FILING A 709 - $36,000 to your son and $36,000 to your daughter-in-law.

So, if your son and daughter-in-law paid $750,000 and the house was worth more like $822,000 on the date of the sale, you won't have to bother filing a 709 at all. Appraisals are only ONE person's estimate of value and you could probably get another appraiser to estimate the FMV at closer to $822,000. After all, the difference is not that large.

[magicjack916]

Thanks for the help. $850K is on the lower end of the appraisals. I wasn't sure if I had to calculate the difference between $850K and my original purchase price of $612K or the difference between $850K and $750K. I gave them a little more for closing costs.

Thank you again.