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Stephen G.
Stephen G., Financial Advisor
Category: Capital Gains and Losses
Satisfied Customers: 6181
Experience:  Senior Tax Expert; CPA/PFS(retired)Personal Financial Planner; Small Business & Professional Mergers & Acquisitions
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Capital gains. my mother, who lives in WI purchased a condo

Customer Question

capital gains. my mother, who lives in WI purchased a condo in FL. I have been living in it and paying her rent to own. I have almost paid the full balance and we were going to change the title to me. But due to a job change, the condo is being sold. two options. #1 keep it in her name. She had income of approx $91k last year from a variety of pension accounts. #2 put it in my name first, then sell. I have income in FL approx $70k. what is the best way to handle? expect gains of approx $15K.
Submitted: 1 year ago.
Category: Capital Gains and Losses
Customer: replied 1 year ago.
FYI - the condo was purchased in July 2011.
Expert:  Stephen G. replied 1 year ago.

The probable reason that you are getting inconsistent answers is because in order to qualify for the personal residence exclusion, you must OWN & live in the home for 2 out of the previous five years ending on the date of sale. In order for valid ownership of real property to be effective, the title must be recorded. So, that is one problem.

The other issue is that if your mother sells the property, she would qualify for long-term capital gains treatment, but she would also be subject to WI income taxes. Further, there would be the issue of what she has done with respect to her income taxes over the "rent to buy" period and what the actual terms of the contract (was it written) between you & your mother were.

If the property were now transferred to you, the gain would be short-term when you sold the property to a third party, unless your mother actually records a sale to you for about the same selling price that you expect to sell the property for. That would preserve the long-term gain for her & eliminate any gain to you. Whether that would work would depend upon what's transpired so far $ wise between you & your mother.

By the time you try to shift things around & pay the costs of doing so, ie. deed transfer (recording) stamps, etc., the best & least cumbersome procedure is probably to just let your mother sell the property directly, especially since you don't know what the actual selling price will be as well as closing cost duplications, etc.

Depending upon your mother's deductions, a $15,000. long-term gain will not result in a substantial tax bill in any case & in fact there could be no federal income taxes at all.

If you want to delve into the details further, tell me more about the numbers involved, the contract between you & your mother, what she has been doing tax wise in the interim between the purchase & now & anything else you think pertinent. I doubt my recommendation would change, but as I said there could be other issues if your arrangement with your mother was informal, ie. no interest, all the "rent" was applied to your "purchase" etc.

.

Expert:  Stephen G. replied 1 year ago.

I see that you returned to the site & read my response to your questions. Do you have any follow-up questions that I can answer for you? If so, please let me know. If not, please remember to rate my response as that is the only way we receive credit for our work.

Thanks very much for using JustAnswer.com.

Update 8/30/2015:

Please let me know if there's something else that I can clear up for you or if you have any other questions. I want to close out this question & would appreciate a response & rating before I do that. Thanks again,

Steve G.

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