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Tuckersmom

sale of house

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I and 4 siblings equally own the house that our father lives in. The value was gifted to us years ago over a period of 2 years to make the transactions tax-free. Now, my father needs to move to a senior living arrangement and we would like the money from the sale of the house to be available to him if he needs it. All 5 of us agree on this and I will likely handle his finances. My question relates to how we handle the money from the sale so it's not in his name, but not in all of ours...can I have it all in my name or would that be considered taxable income to me?

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You clearly need to talk with a tax professional. Why would the sale not be in all of the owners' names?

Sure, the siblings can sign over their interest in the place to you. What your capital gains tax would be on this sale, we cannot know from here. There's also evidently going to be the matter of how to deal with the gifts of money to your father.

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“My question relates to how we handle the money from the sale so it's not in his name, but not in all of ours...“

The short answer is that you can’t. Your father gave the house to the 4 of you. This assumes he gave you bona fide gifts, as he would have needed to do to get the estate and gift tax benefits that he apparently wanted (your post alludes to that when you say he made transfers over 2 years to make the transfers “tax free.”). As a result, you now own the property. You guys now will have to include any gain on the sale in your income on your federal income tax return. Your gain will be the difference between your share the net sales price (i.e. contract price minus costs of sale like the broker’s commission) less the adjusted basis in your share of the the property. The adjusted basis will be the basis your father had it the property adjusted by significant improvements made and any deprecation that was taken or should have been taken on the property. In short, you each will end up including in income 20% of the gain on the place since there are 5 of you that co-own it equally. See IRS Publications 551 and 544 for more information. You can get forms and publications at most IRS offices, have them mailed to you by calling the IRS toll free at 800-829-3676 (800-TAX-FORM), or download them from the IRS at:

http://www.irs.gov/formspubs/index.html

If you lived in the home for at least 2 of the 5 years preceding the sale as your principal residence, you may be eligible to exclude from income up to $250,000 of the gain ($500,000 if you are married filing a joint return).

If there is a loss and the property was an investment property (i.e. you didn’t live in it as a principal residence) then you may be able to deduct the loss, subject to some limitations. However, if it was investment property, there may be issues of imputed rent that should have been included in your income for letting your father stay there as well as possible depreciation. If this is your situation, I suggest you see a tax attorney for some assistance here.

“...can I have it all in my name or would that be considered taxable income to me?”

You could achieve that by having the others either give you or sell to you their interests in the property. But the tax results would be no better that way, and could well be worse.

If the deal was not to really give you the property but rather to put it in your name for you to hold for his benefit such that when the property was sold he’d get the proceeds, that will provide a different outcome. That’s basically a kind of trust arrangement. That could be better here since the sale would be on his return and he’d then get to claim that up to $250,000 gain exclusion. But to make that work, you’d need good evidence of the arrangement. It could also mess up any Medicaid or similar planning that might have been the motivation for making the transfer in the first place. In order to explore this possibility, you really need to see a tax lawyer—it won’t be easy to do.

“All 5 of us agree on this and I will likely handle his finances.”

If the funds are yours from the sale of your property rather than the trust arrangement that I mentioned, then the use of your funds to pay your dad’s expenses raises possible gift tax issues for you. Even if you handle it, it would be better from that perspective that the funds come equally from all of you so that each can make use of the annual gift tax exclusion.

Again, it may be a very good idea to have this reviewed by a tax attorney for advice on your options and what needs to be done to comply with the tax laws.

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