Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
cibarra79
New Member

I sold an income property to friend. I plan on gifting the 12k profits to my daughter. If I endorse the check to my daughter, will I still get taxed for the extra income?

The title company had me sign a Substitute 1099-S proceeds from real estate transaction form.
6 Replies
VolvoGirl
Level 15

I sold an income property to friend. I plan on gifting the 12k profits to my daughter. If I endorse the check to my daughter, will I still get taxed for the extra income?

Yes you will be taxed on any capital gains.  What you do with the proceeds doesn't matter.

cibarra79
New Member

I sold an income property to friend. I plan on gifting the 12k profits to my daughter. If I endorse the check to my daughter, will I still get taxed for the extra income?

Thank you @VolvoGirl I don't think I made any capital gains. I purchased the property for 86k and sold it for 85k. Would I still have to pay

VolvoGirl
Level 15

I sold an income property to friend. I plan on gifting the 12k profits to my daughter. If I endorse the check to my daughter, will I still get taxed for the extra income?

Then you can deduct a loss.

Opus 17
Level 15

I sold an income property to friend. I plan on gifting the 12k profits to my daughter. If I endorse the check to my daughter, will I still get taxed for the extra income?


@cibarra79 wrote:

Thank you @VolvoGirl I don't think I made any capital gains. I purchased the property for 86k and sold it for 85k. Would I still have to pay


They are two separate transactions each covered by their own rules and handled separately. 

 

You selling property you own is reported on your tax return.

 

You gifting money to anyone is not taxable or reported, and it doesn't matter where the money comes from.

 

As far as the property is concerned, you have a taxable gain if you sell the property for more than your adjusted bases.  You must reduce your basis by any depreciation you took or could have taken while using the property in business.  Your capital gain has nothing to do with the actual amount of cash proceeds you receive.  

 

You say income property.  Let's assume this was a rental house.  When you purchased for $86K, you needed to assign a value to the land (does not depreciate) and to the improvements (buildings, etc.) which depreciate over 27-1/2 years.  You can add the cost of improvements, which also depreciate starting from the date they are installed.  This can get complicated and you or your accountant should have been preparing depreciation schedules and keeping records.

 

Take the simplest case, you owned the property for 30 years and made no improvements.  It is now fully depreciated, and your cost basis is only the original cost of the land, let's guess $5,000.  If you sell for $85,000, you have an $80,000 capital gain.  Since this gain is due to depreciation, you pay depreciation recapture tax, which means the gain is taxed at ordinary income tax rates (15%, 22%, 24%, etc. but capped at 25%.)  You don't get the benefit of the 15% long term capital gains rate since all of your gain is due to depreciation recapture.

 

Take a more complicated case, suppose you owned the property for 15 years and made $20,000 of improvements that are partially depreciated.  Your adjusted cost basis might be somewhere around $50,000.  So you would have $35,000 of capital gains, again all taxed as recapture in your case. 

 

This is reported on schedule D.  Any other kind of income property (store front, farm, oil producing land, forest land, etc.) will have an original cost basis, depreciation, and other adjustments to basis, although they differ in details.  There should be depreciation calculations on your past tax returns that will tell you what your current cost basis is. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Rainman12
Level 9

I sold an income property to friend. I plan on gifting the 12k profits to my daughter. If I endorse the check to my daughter, will I still get taxed for the extra income?

"gifting money to anyone is not taxable or reported" - Form 709 may apply , if annual sum >$15k ...

https://www.irs.gov/instructions/i709 

Carl
Level 15

I sold an income property to friend. I plan on gifting the 12k profits to my daughter. If I endorse the check to my daughter, will I still get taxed for the extra income?

I sold an income property

So what you're saying is that you sold rental property.

I purchased the property for 86k and sold it for 85k.

So after taking depreciation into account, you still sold at a gain most likely.  In the year of sale you are required to recapture all depreciation taken and pay taxes on it in that year. So you *do* have a gain and you *will* pay taxes on that gain. If you failed to depreciate the property while it was classified as a rental, that doesn't matter. You are still required to reduce your cost basis by the amount of depreciation you "should" have taken, and you will still be taxed on the recapture amount.

If i endorse the check to my daughter, will I still get taxed for the extra income?
Yes, you will. What you do with the gains from the sale does not matter. *YOU* still pay taxes on it. The gift amount you give to your daughter is not reported on any tax return, ever, provided the amount of the gift given in any one tax year is less than $15K. Bottom line is, you are the one who pays taxes on it.

 

Dynamic AdsDynamic Ads
Privacy Settings
v