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

[Rapid Robert]

How do you know that it was reported inaccurately?

I don't, nor did I ever say I it was. (Ironically, I took extra care to avoid putting words in your mouth regarding your non-answer to the OP in post #2, but I should have expected your lack of reciprocity).

However, as I pointed out in my reply, most likely the brother and sister have been failing to report as required, given typical FRV (fair rental value) rates in all but the poorest regions. As you yourself stated, the arrangement as described is "not unusual" and in the usual case, each co-owner is required to report their proportionate share of gross income and expense. Maybe there is a formal partnership agreement between the three siblings to allocate profits differently from ownership, but none was mentioned.

And I do know that the OP is proposing to report the sale inaccurately. "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." That is fraudulent income shifting, and probably an attempt to hide inherited assets.

See also post #8 by TaxGuyBill.

[Scarecrow]

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.

I guess it depends upon who is your client. If your client received all the money, your client reports all income and expenses. If the siblings are not your client, you don't care how they report their 1099-S information because they are not your client. Let them hire their own tax person to figure out what to do with their 1099-S.

[Bucky]

If the siblings never received income from or paid expenses toward the property I would just show the total sale on your clients return. The 2 siblings file sch D showing a breakeven transaction and move on with life. If the less than 1 percent chance you would have to defend any of this because of audit you have the records. I don't see anyone trying to hide income etc here?

[Burke]

If the others' names were put on the deed at a later date, then it was gifted to them. They have a basis in the property. Run some numbers to determine whether or not they would have any tax liability if you wish. However, this would likely mean the original owner now has a decreased basis. You don't state what their percentage of ownership is. I had the same situation and it was done for Medicaid purposes, but the other parties were each only granted a 1% ownership interest -- enough to avoid the Medicaid problems, but not enough to have an equal or controlling interest or taxable income. Since your client only came to you 3 years ago, and this change was done after that, they would not meet the 5-yr rule for avoiding claw-back of benefits. Lets hope they are not in that situation.

[Uncle Sam]

But then - if the 2 siblings' names were put on within 3 years- then everyone would need to amend their returns to reflect their respective share of the income/expenses. Then the 1099-S to everyone would make sense. You're saying that each got 1099-S for 1/3, then as prior poster mentioned - a gift tax return should be filed to show the transfer to the other 2 siblings.
Why didn't your client mention the title issue with you initially?

[Burke]

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.

If they were put on the title, they have been gifted ownership, and your client is not considered the "actual owner" but (apparently) a 1/3 owner.

[TaxGuyBill]

If they were put on the title, they have been gifted ownership

Not necessarily. It would not considered a Gift unless/until the additional person 'uses' it for their own benefit. A common example is adding somebody to your bank account. It is not considered a Gift unless the additional person withdraws money.

[New York Enrolled Agent]

Not necessarily. It would not considered a Gift unless/until the additional person 'uses' it for their own benefit. A common example is adding somebody to your bank account. It is not considered a Gift unless the additional person withdraws money.

TGB - I think you are correct about the situation involving a bank account but I believe the regulations suggest a different outcome for a name added to real property. Take a look at Reg. 25.2511-1(h)(4) and (5) and see if you agree.

[TaxGuyBill]

Interesting. I stand corrected. Thank you.