Taxes gift or inheritance

[debruss127]

My parents purchased their home in 1995 and put the deed in my brothers name.  Now our parents have passed and we recently sold their home.  My brother is splitting the sale of the home with me.  We both did remodeling projects to the home prior to selling.  What is the best way for my brother to pay me half the sell price?  Should he gift me or inheritance?  The amount is under 100k.  How does my brother and I avoid claiming the sale of the home as income?

[NCperson]

@debruss127 

there are a lot of missing pieces of information that I suspect Community Members will want before anyone responds much further.

1) in what year did your parents deed your brother the house?  

2) what year did your parent's pass?

3) did your brother live in the house at all?  if so, which years? 

[rjs]

The money that your brother gives you is not an inheritance, and there is no way to make it an inheritance. It's a gift from your brother to you. You do not pay tax on a gift that you receive. You don't even enter it on your tax return.

Your brother has to file a gift tax return (Form 709), but he will not have to pay any gift tax unless the total of all the gifts he has made in his lifetime is more than about $12 million. TurboTax cannot be used to file a gift tax return. (If he gives you no more than $16,000 in 2022 or $17,000 in 2023 he does not have to file a gift tax return, but it sounds like you're talking about an amount larger than that.)

The house is not an inheritance to either your brother or you. An inheritance is something you receive upon the owner's death. If I understand you correctly, neither of your parents was an owner of the home when they passed, so no one inherited anything. The home was already in your brother's name, and he was the sole owner, before either of your parents passed.

All of the income from the sale of the home is income to your brother, since he was the sole owner at the time it was sold. There is no way for him to avoid reporting the sale on his tax return. It sounds like the home was a gift from your parents to your brother. If so, his basis is the amount that your parents paid for the home.

The way to avoid paying a lot of tax on the sale of the home would have been for your parents to own it until they both passed, and leave it to you and your brother in their wills. Unfortunately it's too late for that now.

If your brother did live in the home for any part of the five years preceding the sale he might be able to exclude some or all of the income from being taxed. More details would be needed.

[debruss127]

Hello,

Hi, 

Our parents purchased in 1995 and the deed was placed in my brother's name from the start. 

Mom passed in 2012 and Dad in 2020. 

The home was my brother's main residence 

Thank you,

[debruss127]

Thank you for this information.  My brother has not gifted more than 12M in his lifetime. so filing a 709 would just inform the IRS that the income was gifted.  I am still slightly confused; as I am hearing, gifting more than 16,000 is taxed. Am I understanding that correctly? 

The home was my brother's primary residence for more than 5 years, as well. 

[Texas Roger]

A gift of more than $16,000 in 2022 can only be taxed if the lifetime gifts total more than $12 million. The amount of excess is reported on form 709 to inform the IRS that an amount toward the $12 million lifetime limit was gifted in 2022. 

[rjs]

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@debruss127 wrote:

I am still slightly confused; as I am hearing, gifting more than 16,000 is taxed. Am I understanding that correctly? 

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Gifting more than $16,000 (in 2022) requires filing a gift tax return. No tax will have to be paid unless lifetime gifts exceed $12 million, but the return has to be filed. A gift tax return is completely separate from your income tax return. Gift tax, and the gift tax return are the responsibility of the person who gives the gift, not the person who receives it.

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@debruss127 wrote:

The home was my brother's primary residence for more than 5 years, as well. 

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If the home was your brother's primary residence for at least 2 years within the 5 years prior to selling it, he should qualify to exclude up to $250,000 of the gain (profit) from being taxed. His gain is the amount he sold it for, minus the amount your parents paid for it. From what you've said, the exclusion might completely eliminate any tax on the sale. The details of the exclusion are in IRS Publication 523, Selling Your Home. (The 2022 edition is not available yet, but there are no changes from 2021.)

Please note that when you post a reply here, we can't tell who you are replying to unless you indicate it in your reply.

[Opus 17]

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@debruss127 wrote:

Hello,

Hi, 

Our parents purchased in 1995 and the deed was placed in my brother's name from the start. 

Mom passed in 2012 and Dad in 2020. 

The home was my brother's main residence 

Thank you,

---

Based on this information, your brother is the sole owner and is solely responsible for the capital gains tax.

Any money transferred to you is a gift.

When a gift is larger than $16,000, a report must be filed by the giver with the IRS, a form 709 gift tax return.  Actual payment of gift tax is not required unless the giver's lifetime gifts are more than $11 million, but the report must be filed.  This will also be your brother's responsibility.  Form 709 will be due the same date as a regular tax return usually April 15 of the following year) but it is separate from the regular tax return. Turbotax does not prepare form 709. 

[Opus 17]

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@debruss127 wrote:

Thank you for this information.  My brother has not gifted more than 12M in his lifetime. so filing a 709 would just inform the IRS that the income was gifted.  I am still slightly confused; as I am hearing, gifting more than 16,000 is taxed. Am I understanding that correctly? 

The home was my brother's primary residence for more than 5 years, as well. 

---

Technically, gift tax is owed.  But, there is a lifetime deductible amount of $12 million.  That's like a single person with a minimum wage job who made $10,000 a year--technically their income is taxable, but because it is less than the $12,550 standard deduction, no tax is actually owed.