Sale of Principal Residence

[Dale Watkins]

As you know, gain on the sale is possible if seller used the home for 2 of the last 5 years ending on the date of sale. Is the exclusion voided if the sale is to a related party? Thank you.

Dale Watkins

[JG EA]

As you know, gain on the sale is possible if seller used the home for 2 of the last 5 years ending on the date of sale. Is the exclusion voided if the sale is to a related party? Thank you.

Dale Watkins

Did you mean the gain on the sale is excludable? I'm sure you did. Anyway, usually related party transactions are different than normal transactions if there are losses one could take on a tax return.
So, as long as the home was sold just like any sale it would be fine. Even if it was sold for less than FMV it shouldn't have any impact on the exclusion. However, there may be gift tax involved if sold for under FMV.

[taxea]

Did you mean the gain on the sale is excludable? I'm sure you did. Anyway, usually related party transactions are different than normal transactions if there are losses one could take on a tax return.
So, as long as the home was sold just like any sale it would be fine. Even if it was sold for less than FMV it shouldn't have any impact on the exclusion. However, there may be gift tax involved if sold for under FMV.

He gets the exclusion for the sale but not a loss if sold to a relative.

[Dusty2004]

What if

Did you mean the gain on the sale is excludable? I'm sure you did. Anyway, usually related party transactions are different than normal transactions if there are losses one could take on a tax return.
So, as long as the home was sold just like any sale it would be fine. Even if it was sold for less than FMV it shouldn't have any impact on the exclusion. However, there may be gift tax involved if sold for under FMV.

What if it was a single taxpayer - and the gain at Fair Market price would be $750,000 but they sell it to their son for a gain of only $250,000? Would that not be tax avoidance and the IRS would be all over it if they found out?

Dusty

[JG EA]

What if it was a single taxpayer - and the gain at Fair Market price would be $750,000 but they sell it to their son for a gain of only $250,000? Would that not be tax avoidance and the IRS would be all over it if they found out?

Dusty

I don't think so, but I am not completely confident. But they would have a gift tax return in this case. Maybe someone else will chime in if they think there would be any other consequences. If they don't reply, on a question with as much possible taxable at stake, I would call NATP and pay for their tax research on the question. Then the OP would have back up for his file.

[Dusty2004]

Excellent suggestion

I don't think so, but I am not completely confident. But they would have a gift tax return in this case. Maybe someone else will chime in if they think there would be any other consequences. If they don't reply, on a question with as much possible taxable at stake, I would call NATP and pay for their tax research on the question. Then the OP would have back up for his file.

Thanks - I think that would be an excellent suggestion.

Dusty