1099S with 40K "gift of equity"

[sdarave]

MFJ Client sold a rental home to their daughter with a 40K Gift of Equity listed on the 1099S. Form 709 instructions don't seem to clarify whether the gift of real property is treated differently than a gift of cash. Since Idaho is a community property state I'm not sure if each spouse can exclude 15K. I've not encountered this particular problem before, so any insights are going to be helpful, and thanks! Meanwhile, I'll keep on digging...........

[Burke]

There is no box on Form 1099-S for "gift of equity." Are you saying it was added to or subtracted from sales price? 1099-S should have shown only the gross sales price of the property.

[sdarave]

I stand corrected. the gift of equity is listed on the closing document as a debit and included in closing costs. The 1099S shows the entire amount of the sale including the gift. I'm still confused whether they need to report the gift on form 709.

[Rapid Robert]

I'm still confused whether they need to report the gift on form 709.

Yes.

More importantly, in addition to any capital gain income that must be reported by the parents, the basis in the hands of the daughter of that $40K gift is probably zero (assuming the property has appreciated in value over a number of years, as well as having been depreciated by the parents).


From Pub 950:

The gift tax applies to the transfer by gift of any property.
You make a gift if you give property (including money), or
the use of or income from property, without expecting to
receive something of at least equal value in return. If you
sell something at less than its full value or if you make an
interest-free or reduced interest loan, you may be making
a gift.

The general rule is that any gift is a taxable gift.
However, there are many exceptions to this rule.

Generally, the following gifts are not taxable gifts:
• Gifts that are not more than the annual exclusion
for the calendar year,
• Tuition or medical expenses you pay directly to a
medical or educational institution for someone,
• Gifts to your spouse,
• Gifts to a political organization for its use, and
• Gifts to charities.

[MichaelDi09]

I stand corrected. the gift of equity is listed on the closing document as a debit and included in closing costs. The 1099S shows the entire amount of the sale including the gift. I'm still confused whether they need to report the gift on form 709.

Yes , you will. I just completed a Gift tax return Form 709 , with similar situation. Property was not a rental, but gift of equity ,by parent to daughter.