I am reposting this from the Deductions & Credits page, which wasn't the appropriate place to ask about gain on sale of property vs. gift. So, here goes...
2 children (brother and sister) inherited their father's residence who died intestate in 2010. Sister made it her primary residence some years later. In October 2023, brother transferred his 1/2 interest in the real property to his sister and brother-in-law by quit claim deed so that his sister could then use the property as collateral for a mortgage loan. The loan proceeds were received about 7 months later in May 2024. The sister used a portion of the loan proceeds to pay her brother for his 1/2 interest in the property at the FMV established by the lender’s appraisal and used the remaining loan proceeds to make home improvements. The question is whether the quit claim deed of 1/2 interest in the real property from brother to sister in 2023 and the subsequent payment from sister to brother in 2024 should be considered
(1) one sale transaction requiring brother to report a capital gain in 2024 (there was no written sales agreement between brother and sister) OR
(2) are they 2 separate gifts requiring a Form 709 gift tax return - first a gift of property from brother to sister in 2023 and then a gift of cash from sister to brother in 2024?
The only documentation is the October 2023 quit claim deed of 1/2 interest from brother to sister with no consideration at the time, then a wire transfer of cash from sister to brother 7 months later when she received the mortgage loan proceeds in 2024.
