Hi. My name is ***** ***** I will be happy to help you.
The scenario has to be treated as two separate transaction. Sell of the property
(as you would sell it to an unrelated person) and the gift.
Because there are 3 owner, the basis and the proceeds has to be divided by 3.
Basis: 226,500/3 = 75,500 (each)Sales
proceeds: 285,500/3 = 95,000Capital gains
for each of you: 75,500-95,000 = 19,500 (each)
Assuming your son used it as his primary residence since 2008, he will be able to exclude the gain under principle residence exclusion. You and your spouse, because you didn't used the place as your primary residence will have to report capital gains of $39,000 (9,500x2)
You cannot deduct the closing costs because those will be paid by your daughter. The fact, that you made mortgage payments doesn't change your capital gains because the mortgage interest
in the year it is paid. (Schedule A
). You will also have to report the difference between 285K and 228K as gift on form
709. Assuming you haven't used up your 5.43M lifetime gift tax
exclusion, there will be no gift tax.
5.43M lifetime gift tax exclusion means that you can gift 5.43M during your lifetime before having to pay any gift tax.
It is probably not the answer you were hoping for, unfortunately because the gift is not taxable to your daughter and it increases her basis, you cannot just deduct it from the sale proceeds or add it to your basis to calculate the capital gains. You could avoid capital gains by selling it to her for how much you paid it for, 226,500. That way you would not have to pay capital gains, however when she sells it in the future, she would have to use 226,500 as her basis to calculate capital gains.
Let me know if you have any questions.