Transfer of Title to Daughter

[geekgirldany]

Daughter has home but is going through divorce. Father purchased a new home for daughter under his name with money he borrowed from the bank. Daughter has lived in this house for one month. No rent paid to father.

Daughter's home is now sold and in closing. When the deal goes through Daughter will get loan from bank to pay Father back. Title will then be transferred to Daughter for this home. Father paid $88,000 and that is what the Daughter will be paying him back.

To me at first glance there will be reporting on Schedule D $88,000 cost and $88,000 sale price. I also know there are rules with related party transactions.

So looks like the father's costs will have to be adjusted for depreciation (allowed or allowable). There is a possible gain and that gain would be ordinary income because of the related party. Is there anything else that I am missing?

Would it be best to advise them to do a like kind exchange?...and daughter hold property for two years to avoid gain. I would have to refer them to go to a attorney for that.

Thank you for any help,
Dany

[Gary2]

I don't see where you're getting depreciation from. There's no rent, hence it's personal use, and any deductions would be limited to income - zero, in this case. Thus no depreciation allowable. (Not to mention that there's no depreciation if bought and sold in the same year.)

Personal use would also rule out any sort of like-kind exchange.

The gain, if any, is likely to be tiny, due to recording fees, etc. My reading of Pub. 544 is that they would be capital gains, even though sold to a relative, because they won't be depreciable by the daughter.

[geekgirldany]

Thanks Gary you correct, no rent so it is not income producing property subject to depreciation. Plus, like you said, since it is not depreciable property it will be capital gain not ordinary.

They may actually have a loss on this if the father pays the recording fees. Which would be not be deductible by father.

Thanks for the help. I've been scattered brain this summer. Appreciate the help.

Dany