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Sandi Hargrove, SkyHawks
Sandi Hargrove, SkyHawks, Master Tax Advisor, Enrolled Agent
Category: Tax
Satisfied Customers: 1257
Experience:  I am a Master Tax Advisor and Enrolled Agent. I have 40 years experience. Trucking specialist.
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Capital gains

Customer Question

I purchased a house in my name and my wife's name for our son who did not qualify for credit reasons in February 2003. I had to buy it as an investment. My son lived in the house dayone. He was paying the mortgage and all bills related to the house including the real estate taxes. Last year in August 2004, I refinanced the house and included my son on the loan as primary and me as secondary. If he sells the house now to buy a bigger house could he qualify for not paying capital gains?
Submitted: 11 years ago.
Category: Tax
Expert:  Sandi Hargrove, SkyHawks replied 11 years ago.

 He may qualify for the 250000(500000 if his spouse also qualifies) exclusion if he has been an owner(on the title even jointly with you) and lived in the home as his primary residence for at least 2 years of the 5 year period prior to the sale.  The financing of the loan has no bearing for this issue.


He may qualify for a reduced exclusion if his move is job related, health related or due to unforseen circumstances AND he has not used the exclusion on another home in the last 2 years.


Another issue you have is that for tax purposes it seems that you have an installment sale to your son to report AND possibly a gift to report.


His payments of your obligations(mortgage, taxes, repairs, etc) will be considered to be his payments to you.  The remaining value of the property will be your gift to him.


The installment sale must have a portion of the payment considered to be interest income to you even if no interest was charged by you.  You will not be eligible to deduct a loss on the sale since he is a related party if you sold for less than fair market value.  Your disallowed loss will reduce his cost basis.


A gift tax return will be required by you if your total gifts(including the home) are more than 11000 per year.  Your spouse may also gift the same amount to him.  Each of you may also gift the same amounts to his spouse if he is married.


I strongly suggest you consult an Enrolled Agent to assist you with this portion of your tax return.


 

Sandi Hargrove, SkyHawks, Master Tax Advisor, Enrolled Agent
Category: Tax
Satisfied Customers: 1257
Experience: I am a Master Tax Advisor and Enrolled Agent. I have 40 years experience. Trucking specialist.
Sandi Hargrove, SkyHawks and 2 other Tax Specialists are ready to help you
Customer: replied 11 years ago.
Reply to Sandi Hargrove, SkyHawks's Post: Sandi,

Thanks for your answer, but my question was not fully answered.
"He may qualify for the 250000(500000 if his spouse also qualifies) exclusion if he has been an owner(on the title even jointly with you) and lived in the home as his primary residence for at least 2 years of the 5 year period prior to the sale. The financing of the loan has no bearing for this issue".
He was not on the title until refinanced in August 2004. My concern is, although he lived in the house for over two years, his name was not on title from February 2003. Will this qualify him or not?

Thanks Sandi.

Victor Musallam
Expert:  Sandi Hargrove, SkyHawks replied 11 years ago.

 He will be eligible for the exclusion only from the date his name was placed on the title(august 2004).  His name need not be on the loan to qualify.  The time he lived in the home prior to that date will not be counted.


Example: on title august, 2004 and sold property august, 2005       250000 exclusion max divided by 1825 and multiplied by 12 = 1644 exclusion allowed if the move is job related, health related or due to unforseen circumstances


               

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