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Barbara Lamar
Barbara Lamar, Tax Lawyer, CPA
Category: Tax
Satisfied Customers: 188
Experience:  JD, MBA University of Texas at Austin, over 18 years representing small businesses
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TAXES ON DIVIDED NET PROCEEDS OF REAL ESTATE SOLD

Customer Question

MY FATHER AND I OWN TWO PIECES OF VACANT LAND NEXT TO EACH OTHER. I DECIDED I WANTED TO SELL, SO MY FATHER SAID HE WOULD PASS HIS LOT TO MY NAME TO MAKE THE SALE EASIER AND THEN FOR ME TO USE HIS PORTION OF THE NET PROCEEDS FOR MY KIDS EDUCATION FUND...BUT A FEW DAYS LATER MY FATHER CALL ME TO SAY HE ACTUALLY WANTS PART OF HIS PORTION OF THE NET PROCEEDS.
TO MAKE IT EASIER TO UNDERSTAND LETS SAY THE SALE PRICE IS 90,000
THE NET PROCEEDS AFTER CLOSINGS AND AGENT’S COMMISIONS IS 80,000
MY FATHER TOLD ME TO KEEP 50,000
AND GIVE HIM 30,000.
SO, HERE IS THE QUESTION???
HOW DO I GO ABOUT SHOWING FOR TAXING PURPOSES THAT I ONLY POCKETED 50,000 SO THAT I ONLY PAY CAPITAL GAINS TAXES ON 50,000 AND FOR MY FATHER TO PAY CAPITAL GAINS ON HIS 30,000.
WHAT IS THE BEST WAY TO DO THIS TRANSACTION?
I DON'T WANT TO BE STOCK PAYING THE TAXES ON THE FULL AMOUNT, BECAUSE I'M NOT KEEPING THE FULL AMOUNT.
PLEASE RESPOND ASAP. THANKS!
Submitted: 11 years ago.
Category: Tax
Expert:  Christopher Phelps replied 11 years ago.
I suggest both you and your father see a competent CPA as soon as possible, especially if this was a 2004 transaction. The other specialists' answer will not work because it does not address the issues you created by the transfer of property back and forth between you and your father.

When your father transferred the property to you he completed a gift potentially causing gift tax. By the same token, when you gave him cash you also completed a gift which may also be subject to gift tax. Over the course of the calendar year, if the value of all the property (cash, stocks,real property, etc.) you transfer to an individual other then your spouse exceeds $11,000, then you may be subject to pay gift tax and be required to file a gift tax return. If you have a spouse you may give up to $22,000 without gift tax consequences. In this scenario both of you may need to file gift tax returns (Form 709) and you end up reporting the entire sale on your income tax return.

A potential solution is for you to take the position that you were acting as an "agent" on behalf of your father's interest (which may have been the case) and you in effect received his proceeds for him. To substantiate this you will need to issue a nominee 1099 giving to him his share of the 1099 you received for the sale of the property.

I really recommend you see a tax attorney or CPA immediately to get all your ducks in a row. They should be able to hear the full story and recommend the best course of action in your situation.
Expert:  Barbara Lamar replied 11 years ago.
I agree with Chris that you and your dad should see a good CPA, or better yet, a CPA/lawyer to make sure all the paperwork is handled correctly.

Greg's idea would work to even out the money, but you'd still have the problem of the gifts.

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