2ND Home

[qzp9gp]

I have a client that sold a 2nd home to his daughter. Daughter stayed in the home prior to his selling home to her. Daughter did not pay rent. Client had equity in the home and was told that for a family member he could Gift Equity to daugher, which he did. Client purchase price was reduced by equity and was added to daugher's mortgage. I had never heard of a gift equity before. Client was told my mortgage company that he would not have to pay taxes on that amount. Because my client did not rent the home, I think I would show on Schedule D as a regular sale and deduct any settlement cost like a regular sale of main residence but cannot take any exclusions.

My questions are: How would the gift equity be handle? Would daughter have to show this as a gift and pay taxes on amount over $10,000. Thanks for your help

[Brian EA]

I have a client that sold a 2nd home to his daughter. Daughter stayed in the home prior to his selling home to her. Daughter did not pay rent. Client had equity in the home and was told that for a family member he could Gift Equity to daugher, which he did. Client purchase price was reduced by equity and was added to daugher's mortgage. I had never heard of a gift equity before. Client was told my mortgage company that he would not have to pay taxes on that amount. Because my client did not rent the home, I think I would show on Schedule D as a regular sale and deduct any settlement cost like a regular sale of main residence but cannot take any exclusions.

My questions are: How would the gift equity be handle? Would daughter have to show this as a gift and pay taxes on amount over $10,000. Thanks for your help

A second home is like an investment property or mutual fund. You cannot take the exclusion as in the case of your primary residence and it should be reported on Sch D.

Since it was not rented there is no depreciation to recapture. Settlement costs are added to basis. This equity gift THING gets me. Maybe someone out there would jump in and provide some info.

good luck

[Bees Knees]

A gift is not taxable to the recipient. The gift is taxable to the one giving the gift, but actual tax is not paid until the giver gives more than his or her lifetime gift tax exclusion ($1 million in years 2002 through 2009).

So for example, say the home is worth $200,000 with a mortgage of $120,000 on it. Father sells the house to daughter for $120,000 by simply transferring the mortgage over from the father’s name to the daughter. The daughter now owns a house worth $200,000 and is responsible to make payments on the $120,000 mortgage.

The father has made an $80,000 gift to daughter, reportable on a gift tax return. But due to the $1 million lifetime exclusion, father pays no tax. He does report the sale on his 1040 with $120,000 as gross proceeds, minus whatever his adjusted basis is in the home.

[Bees Knees]

A side note, I'm not sure a loss on the sale would be deductible. If the 2nd home was being used by a family member with no rent charged, that would be considered a 2nd home and not investment property. You cannot deduct the loss on the sale of a 2nd home if it is not business or investment property.

[Brian EA]

A side note, I'm not sure a loss on the sale would be deductible. If the 2nd home was being used by a family member with no rent charged, that would be considered a 2nd home and not investment property. You cannot deduct the loss on the sale of a 2nd home if it is not business or investment property.

That's correct Bees. No deductible loss

[qzp9gp]

Thanks Guys, In doing more research, I came across on the Sale of Home worksheet a question that asked if this was a related party. Still doing some research to see if this would apply in any way. By the way Brian, the phrase on the settlement paper was "Gift of Equity" if that makes a different in determining what it means