Sale of Second Home Proof of Basis? in TurboTax Premier 2022

[gjfudge]

I inherited a property from my father in 2004.  The property was appraised at $121,500 (my basis) at that time to settle his estate.  I have used this property for as a second home and for personal use since that time.  I sold this property to my son in 2022 for $115,000.  I received a 1099-S reporting the gross proceeds of $115,000 in box 2. 

I use TurboTax Premier to file my taxes electronically.  I have input the data in Form 8949 and Schedule D in TurboTax Premier 2022.

I have two questions:

• Can I file my return electronically with TurboTax reporting this income and sale?
• Do I need to submit any proof of my basis and if so, how?  

[RalphH1]

You can definitely e-file a return which includes the sale of a second home! And the IRS does not ask for any other info at this point (just an accurate basis and other details on the 8949, Schedule D and accompanying home sale worksheets that TurboTax makes as you enter things). Of course, you’ll want to save all the related documentation, just in case they become curious later (which hopefully won’t happen!).

[gjfudge]

Thanks so very much for your reply!

[tagteam]

---

@gjfudge wrote:
Do I need to submit any proof of my basis and if so, how?  

---

You do not have to submit proof of your basis, but you might need such proof should the transaction ever be questioned by the iRS.

So that it is clear, your basis is almost certainly the fair market value on the date of death of your father in 2004. 

If the property was appraised shortly after that date by a certified appraiser, that value is most likely sufficient for your purposes.

However, if the property had appreciated between 2004 and 2022, when you sold the property to your son for $115,000 (which seems likely), then the transaction would actually be part gift/part sale. The end result would not change for you, personally, other than you could be required to file a gift tax return (Form 709), but you son's basis could vary.

[KrisD15]

Just to be clear, you cannot claim a loss on this sale. 

First of all, a loss cannot be taken on a personal asset, such as your home. 

Next, as pointed out earlier, you may be concerned as to what would your son would report as his basis in the house? 

If the house is truly worth 115,000, that would be his basis.

If the house is worth more than 115,000, you may be in essence "gifting" him the difference and his basis may be higher than the 115,000 he paid.

This might have no bearing going forward OR it may be of concern if your son sells the house at a gain or uses it as a Rental Property. 

More information from the IRS

@gjfudge 

[gjfudge]

Thanks for your good reply.  I am going to file a Form 709 to report the $125,000 difference between the current appraised value of $240,000 and the sale value of $115,000.  Less the $16000 annual exclusion makes for a gift of equity of $109,000.  I will then apply this $109,000 toward my lifetime exclusion of $12, 060,000.  Sound correct?

Thanks again.

[gjfudge]

Thanks for your reply.  Of course I can not take a loss for two reasons: the sale was to a relative and the property was for personal use.  Also, I did not want to be faced with allowable depreciation taking the property to a value less than my basis and then having a capital gain. 

When my son got the loan, the bank had an appraisal made and the value came in at $240,000.  (This is approximately the same valuation as our county tax auditor has for the real estate taxes.)  I believe that he will use this as his basis if he decides to sell later.

I intend to file a Form 709 to report a gift of equity of $109,000.  (i.e.$240K-$115K-$16K=$109K, the $16K representing my annual allowed gift exclusion) I will then apply this $109,000 toward my 2022 lifetime permitted exclusion of $12,060,000.

Sound correct?

Again, thanks for your reply.

[tagteam]

Your figures appear correct, @gjfudge.

This is a transfer in part a sale and in part a gift so Section 1.1015-4 controls.

See https://www.law.cornell.edu/cfr/text/26/1.1015-4

[gjfudge]

Thank you for your time and good reply.