Sale of Rental Property

[Jetboy]

My daughter was renting a house I owned.  I sold it to her last year. I had a $200,000 "capital gain" for the sale. In order for her to meet the debt/equity ratio for the bank's underwriting requirements, I gifted her $195,000.  This was all documented in the closing statements.  How can I enter this in Turbotax so that I'm not paying taxes on gains I did not receive?

[PatriciaV · Accepted solution]

The sale of a business asset can result in a taxable gain. There is no deduction for gifting the proceeds, unless the recipient is a registered charity. Your available offsets to this income would be capital losses carried over from prior years or other capital losses in the current year. 

However, the gain on the sale would be reduced by selling expenses (like commissions) and the total depreciation claimed while the property was used as a rental asset. Enter this sale in TurboTax under Sale of Assets in the Rental Property section. If you have been reporting this activity in TurboTax, your adjusted basis has already been calculated.

Also note that any gift worth more than $16,000, must be reported on Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return, which is due April 15 of the following year. Even if you do not owe a gift tax because you have not reached the $12.06 million lifetime limit, you are still required to file this form if you made a gift that exceeds the $16,000 annual gift tax exclusion level. The IRS needs to keep a running tab of your lifetime exemption.

Read more about this here: TurboTax Tax Tips: The Gift Tax

[marcia6397]

I'm just an individual, not a tax advisor, but I've had some experience with gifting within families and rental property.   The problem is, you did receive these gains tax-wise the way you explained the deal to be set up (you then gifted the amount you received to your daughter).  As the other person said, you definitely need to file that gift transfer form - you aren't allowed to just give money away to someone above the yearly limit without this.   Overall, it sounds to me like a big problem situation.  Any chance you lived in the rental house 2 or the last 5 years?  Then it might be called your home not a rental.  In my personal opinion, the thing to have done would have been to have sold it for a lower price, and then gift the "equity" in the gift transfer form, as home sales are exempted from the first $250,000 of capital gains when your daughter next sells it, but rental property are investments so are not.  Any chance any of these real estate documents about the price could get changed, and are you sure the rental house sale paperwork has to get interpreted that way?  Filing for a tax extension and checking with a lawyer might be something to consider.   Also If somehow you sold at the end of last year, it is allowed to reinvest the capital gains in another rental property but only within 6 months of the sale.  Overall, this is either a costly or complex problem.   Also, when figuring out the basis for the rental property, be sure to include in it any money put into major improvements over all the years you owned it.  Sorry you have this mess.