Who reports gain on sale of rental?

[mrtax]

TP bought rental property a few years back with his dad. Both are on deed. TP could not get financing so dad took secured a mortgage on his primary residence. Son made all payments and received all rental income. Dad's only interest in the investment was to secure the loan to help son. Now son is selling the property at a gain. Would the sale have to show both parties even if only one received all the economic benefits?

[Roland Slugg]

Would the sale have to show both parties?

I'm afraid I don't understand that question. The title of your post however, seems to be asking WHO REPORTS the gain, so I will try to answer that question.

Gain on the sale of rental property ... or any asset ... is reportable on the tax return(s) of the owner(s) of the property. If an asset is owned by two or more owners, the gain is reportable by each in proportion to his ownership interest/percentage. You didn't tell us in your post what the ownership percentages are, so it's impossible to say. The fact that son collected the rents and made the mortgage payments is not the controlling factor, however. With family-owned assets, it's not unusual for one co-owner to allow another owner to do that, planning on a settlement some day ... or perhaps not. The deed should say who owns how much of the real estate, but if it doesn't, then it becomes a "facts and circumstances" situation.

[mrtax]

Dad is concerned that the fact that he is on the deed as a joint owner (equal & undivided interest) he will have to include part of gain although his only involvement was in help his son finance the purchase. Can the son have the 1099-S issued in his name only?

[taxea]

Whose SSN appears on the 1099?
If Dad and the agreement is the son takes all income and expenses then it has to be reported on Dad's return, then backed out.

If Son then he needs documentation proving their agreement should be attached to the return along with the sale.

[Burke]

Dad is concerned that the fact that he is on the deed as a joint owner (equal & undivided interest) he will have to include part of gain although his only involvement was in help his son finance the purchase. Can the son have the 1099-S issued in his name only?

I don't think so. Joint owners should both receive the 1099-S. Did the son report the income and expenses, including depreciation on the property 100% on his return?

[Kram BergGold]

My Opinion

There have been court cases in similar situations that allow the son to deduct 100% of the real estate taxes and interest on a primary residence when a brother or father's name is on the deed. If the Dad can clearly show that he only put his name on the property so the son could buy it and the son always received all income and paid all expenses and is keeping all net proceeds from the sale, then I would tax 100% to son. If each gets a 1099-S I would wash it off the Dad's return and add that amount to son's return. I think in this situation, you follow the money and not the letter of the law.

[Roberts]

Did the son report the income and expenses, including depreciation on the property 100% on his return?

I'd follow through with however this was handled. If the son reported all of this solely, I'd have the son report the profits.
If they shared the previous reporting, I'd share the profits.

[Burke]

Why can't the Dad issue a quitclaim deed to the son before sale? He relinquishes his ownership rights, but of course, that does not remove his name from the mortgage. Since the mortgage is attached to the house and recorded, it will have to be paid off at sale.