sale of residence

[POCAHONTAS]

parents gift their home to son, the home is paid for, the son takes out a loan on the home for $60,000 and then sells the home. The son did not live in the home even though the son owned the home for 5 years, the home remained vacant. How would the sale of this home be reported???

thanks

[solomon]

What was the parents' basis and what did the son do with the 60K? Do you really believe it was truly vacant for five years?

[POCAHONTAS]

the parents basis was $85,000 and he used the $60,000 to pay his credit cards

[taxxcpa]

Sale of house

the parents basis was $85,000 and he used the $60,000 to pay his credit cards

The basis would be $ 85,000. The loan would have no effect on the sale.

[DonPriebe]

Basis of property received as a gift

The basis would be $ 85,000.

Perhaps this is correct, but only if the FMV at the time of the gift were $85K or higher. If the FMV were lower than $85K then the house has a dual basis - $85K for calculating a gain from the subsequent sale or FMV for calculating a loss. And if the house sold for an amount between the two bases it would neither be a gain nor a loss. (Pub 551, page 8)

To the original question - report on Schedule D with no Section 121 exclusion.

[JON]

If

the parents' basis exceeded the FMV that would be unusual and the parentns live in a bad place or recently acquired the home prior to the downturn?????? His basis is the lower of the parent's basis-cost or FMV at the time of the gift. It would be the first time I ever saw a parents' basis less than the sale - but could happen. Where is this so I can avoid the area...

[Burke]

parents gift their home to son, the home is paid for, the son takes out a loan on the home for $60,000 and then sells the home. The son did not live in the home even though the son owned the home for 5 years, the home remained vacant. How would the sale of this home be reported???
thanks

You did not say, but I would ask the following:

1. Did the parents retain a life estate and continue living in the home for a while?
2. Were one or both still living or were they deceased at the time of sale?

Otherwise, it is an outright gift and the basis is the parents' basis (stepped up at death of one or the other prior to gift). His loan/mortgage is immaterial to the calculation. Sale of capital asset at long-term rates.

[POCAHONTAS]

parents lived in it for several years and if they were to sell the residence themselves they would have qualified for the section 121 exclusion

Both parents were living at the time the residence was gifted and at the time of the sale.

The parents had not made any improvements to the house, so I am thinking the basis would be the parent's basis and the only increase in basis would be the selling costs. Correct ??

thank you all

[taxmom34]

in your original post you stated the house remained vacant. . where were parents living? were they in nursing home?

[POCAHONTAS]

the parents lived in it from the date of purchase until they gifted the house to the son and then they moved to another state, the house remained vacant because the son lived in a different city, and he had been trying to sell the house for the last 5 years but hadn't been able to because he didn't have the time to travel back and forth.

[Burke]

Since they made no improvements, basis is their cost + closing costs on purchase. Can't figure out their reasoning for gifting if son didn't even live in the area. Maybe they thought he would move there. Oh well, only thing you can do now is deal with the circumstances as they are. Sale of capital asset, goes on Sche D at long-term gain rates.

[POCAHONTAS]

well I think their reasoning might have been if we gift the residence to our son, and when the residence sells they might avoid paying taxes ( I am sure they didn't consult their tax preparer) or it might be easier to sell the house if the son had possession of it I can't think of anything else.

thanks all