Gift of Equity WITH capital gains?

[chockstra]

Hi. I sold my 2nd home that I was not living in. It appraised at 150k. Buyers paid 56k: 36k of remaining mortgage & 20k profit. What taxes will I (the seller/giver be responsible for this transaction?

[TomD8]

Agree with @Anonymous_.

"Where a transfer of property is in part a sale and in part a gift, the transferor has a gain to the extent that the amount realized by him exceeds his adjusted basis in the property."

26 CFR § 1.1001-1 - Computation of gain or loss. | Electronic Code of Federal Regulations (e-CFR) | ...

@chockstra --

Using your figures:

You have a taxable capital gain of $56K less your adjusted cost basis.  Your adjusted cost basis is your original purchase price plus the cost of any capital improvements you made to the property (new roof, room addition, etc.).  The mortgage balance is irrelevant and is not part of the capital gain calculation.  Your actual capital gain tax amount will depend on whether the gain is short or long term, and on your total taxable income.

You have made a gift to the buyer of $94K, which requires that you file a gift tax return, IRS Form 709, with the IRS.  The form is required because $94K exceeds the current gift tax annual exclusion amount of $18K (2024).

No gift tax is due until you exceed your lifetime gift tax exclusion amount, currently $13.61 million, but Form 709 is nevertheless required by the IRS for reporting purposes.

https://www.irs.gov/pub/irs-pdf/f709.pdf

Finally, if the property was ever rented out, you may have tax due for depreciation recapture.

[chockstra]

Thank you so much for your response. 

1. I purchased in 1998 for $83,700. Approximately $30k in improvements (roof, siding, interior, deck,) but no longer have those receipts. 

2. Sold to my 1st cousin and his wife.  Who lived there since 2011, paying monthly mortgage. 

[TomD8]

@chockstra --

OK, your adjusted cost basis is $113,700.  Your proceeds from the sale were $56,000.  You have a capital loss of $57,700.

Were your cousin and his wife paying you full market value rent for the property over the years? If not, then your capital loss is not deductible on your tax return.

You still have the obligation of filing a gift tax return with the IRS.  The obligation to file the gift tax return lies with the gift giver, not the gift recipient. 

[chockstra]

Thank you for your insight, TomD8. 
No, I never received full market value rent from my cousins.