Sale of rental home with 3 owners but reported only by one

[GTS1101]

I have a unique situation that I am not sure how to handle. Client and her brother and sister are on title to a rental property. I did not know this when my client first came into do her tax return 3 years ago. She did not mention that there were other owners on the property. So my client has reported all the income and expense for the last 3 years as a rental until sold in 2019.

My question is how do I report the sale? The title company gave a 1099-S for 1/3 of the sale to each of the owners. How do the other two report it if they never showed it as a rental? Or can I do a 1099-S nominee form to give all the proceeds to my client? The title company will not change the 1099-S because the title has all 3 owners on the property.

Thank you!

[ATSMAN]

This type of situation in a family is not unusual. I have a client again brother and sister who inherited their parent's house and put it on rental. Brother takes care of rental issues, maintenance etc. Sister does nothing except help find new tenants through her vast social contacts when there is a vacancy. Brother gives a small portion of the rent he collects as a gift to his sister. Brother declares all rental income and expenses. I was told that they have an agreement that if they sell the rental, they will split the profit 50/50.

[GTS1101]

Thank you for the quick response. I have had similar situations as you described and had no problem reporting that way. The issue I am having this time is each sibling received a 1099-S for the sale of the home. I prefer to report the entire sale on the tax return of my client and then she can collect the tax from her brother and sister and they will split 1/3. But the title company issued a 1099-S to each one of them. If I don't report the sale on all three they are going to get a letter from the IRS in a couple of years asking why they did not report the sale. So I am thinking maybe a 1099-S nominee form to the brother and sister to move all the proceeds to my client so she can report the sale but I am not sure if that can be done. The title company will not change the 1099-S forms because the title has all 3 owners on the property.

[ATSMAN]

prefer to report the entire sale on the tax return of my client and then she can collect the tax from her brother and sister and they will split 1/3

I generally don't like this method because there is always an issue of collecting taxes from siblings and then I have to get involved indirectly to show them the calculation etc.

If they are going to split the sale proceeds 1/3 each let them handle it in their own tax returns.

[TAXNJ]

As far as the t the real estate tax and mortgage interest, you might want to look in The TaxBook and other sources as to who can deduct the real estate tax and mortgage interest (if any) If not a 100% owner.

Current scenario may have some conflicting issues. Also, research on How to report sale of asset with multiple owners.

[Uncle Sam]

Are you the accountant for the brother and sister also or just one sibling?
When she came to you 3 years ago - was this rental property already listed on the prior year return, or after she came to you did she mention she had rental property?
How did she provide you with the rental reporting information - actual real estate tax bills/insurance or was it solely handwritten information?

[GTS1101]

The problem with them reporting all on their own tax returns is my client showed the full income and expenses as a rental. The other two have never showed it on their returns. So maybe what I do is adjust the basis at the time of sale to 1/3 on my client's return and then the brother and sister and report it as a sale of an investment property with their 1/3 of the basis.

The brother and sister never file a tax return because they don't have enough income to be required to file. Because of this sale and the 1099-S issued they are going to need to file. Everything has always been in the name of my client. The first year of the rental was reported with us. There was no prior history. The brother and sister were added on to the deed at some point and they did not tell me about that. She gave me the actual bills and receipts for income and expense but all items were in my client's name.

It would be so much easier if I could just do a nominee 1099-S to move all the proceeds to my client and she can report the sale but I am not sure if this can be done or not. The title company will not change the 1099-S forms because all three are on the deed.

[TaxGuyBill]

I prefer to report the entire sale on the tax return of my client and then she can collect the tax from her brother and sister and they will split 1/3.

Why would you do that? Report what ACTUALLY happened: Your client received 1/3 (and that is what the 1099-S shows). Don't make up information that is contrary to what happened.


As for the three owners, what was actually happening? Was your client paying and receiving everything? Or was everything split 3 ways? If it was split, everybody might need to amend the prior return. If your client had it all, then no, the taxes would not be split 1/3. Your client benefited from the ALL of the depreciation, so her taxes will be higher due to her depreciation.

[GTS1101]

So the other two owners were just on title. My client received all the proceeds. They never received any of the income or paid any of the expenses. They did not contribute anything to purchase the property. They were just added on to title. My client is the actual owner of the property and received all the benefits. So as I think about this if my client reports everything she will not need to collect any taxes from her brother and sister because they had nothing to do with the property. They were just added to title.

[TAXNJ]

You should find out if the “title” (ownership) is listed as “joint tenants,” or as “tenants in common.”

As far as real estate deduction for “multiple owners”, interesting article may provide some future insight:

https://law.scu.edu/same-sex-tax/sha...ax-deductions/

[Uncle Sam]

While you are describing this whole thing - how were the siblings put on the title? Was it inherited from a deceased parent, or gifted? If gifted - was a gift tax return ever filed?
From what you're saying - what if the brother and sister were each to nominee their 1/3 of 1099-S to your client?

[ATSMAN]

In my state I see quite often a family member's name added to the title when the property was originally in one name only or if jointly owned one owner died.

The reason for that is to beat the state's medicaid laws for nursing home care. If the property is owned by more than one individual the state can not force a sale to recoup their expense.

[TAXNJ]

At this point, with so many reply posts' suggestions and questions that may or may not help, if you have not decided on a way to report, you might want to consult with a Tax Attorney since you have more facts and circumstances then you can provide on the posts.

It might be more beneficial to consult with a Tax Attorney to get more specific information that would support your scenario (which is more important than any reply post).

[Rapid Robert]

This type of situation in a family is not unusual.

Even so, I don't see that as a good reason for reporting it inaccurately.

The brother and sister never file a tax return because they don't have enough income to be required to file.

No, with their share of the rental gross income, they most likely were required to file.
Income shifting for tax purposes (reporting one taxpayer's gross or net income as anothers) is unlawful.

[ATSMAN]

[QUOTE=Rapid Robert;n303229]
Even so, I don't see that as a good reason for reporting it inaccurately.


How do you know that it was reported inaccurately?