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We co-signed on a loan for our son to buy a house August 23,

2012. We are listed...
We co-signed on a loan for our son to buy a house August 23, 2012. We are listed as on the deed as co-tenants with him being owner 1 and us owner 2. He lives in Nevada. We live in Ohio. He is now moving to California for a different job. The house has sold and will clear about 30,000 in profit. First, does the title company half to split the profit between our son and us or can the profit go entirely to him? Second, if half the profit in given to us, since this was NOT our primary residence but he only lived their 11 months, will we be required to pay income tax? Can we still give him the money/profit? We do not want any of the money unless we have to pay taxes. If he gets it all, are we free from the tax problem.
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Answered in 10 minutes by:
7/4/2013
Richard
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 55,808
Experience: 29 years of experience as a tax, real estate, and business attorney.
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Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good evening. Pursuant to IRS Publication 523 (page 5 at http://www.irs.gov/pub/irs-pdf/p523.pdf): "If you and a joint owner other than your spouse sell your jointly owned home, each
of you must figure your own gain or loss according to your
ownership interest in the home." Thus, since you are each on title you are deemed to each own 1/2 of the house and you will each need to report 1/2 of the gain. If it does not qualify as a principal residence...for your son because he doesn't satisfy the time period and you because you don't live there, it will be a taxable capital gain....short term if held less than 12 months and if short term taxed at your ordinary income tax rates. You can then gift him any after tax proceeds if you want with no gift tax consequences to either of you. Recipients of gifts are not subject to gift tax. And, there should also be no gift tax due from the donor. Each donor can give $14,000 per year per person under the annual gift exclusion. In addition to that, for any amounts in excess of the $14,000 in a year, each person has a $5,250,000 lifetime exemption....which means a person can give a cumulative amount of up to $5,250,000 in gifts over and above the $14,000 annual gift exclusion amount without incurring gift tax....the donor must file a gift tax return to let the IRS know how much of the lifetime exemption is being used, but there will be no gift tax until cumulative additional gifts have exceeded the $5,250,000.


This is the part of my job I don't like...when the law is not in favor of my customer. I wish I could tell you that the tax consequences of the sale were different, but, I can only provide you information based on the law so that you can act on the best available information to you. ………..I wish I had better news, but can only hope you recognize and understand my predicament and don't shoot the messenger. I'm sorry!




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Richard
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 55,808
Experience: 29 years of experience as a tax, real estate, and business attorney.
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