follow up question regarding a gift of equity on sale of rental property

[sdarave]

This one has been a learning experience for me. My desk is covered with printouts from various sources (TTB, Drake, various IRS pubs!).. So, I got through he learning curve on the Form 709, but I'm still confused about 4797. Can the "Gift of Equity" be subtracted from the Gross sales price, OR, added to the basis??
I've done lots of 4797's before but never one where the gift of equity has been an issue. The gift (to a daughter) is listed on the closing documents. Thanks in advance for responses!!

[TAXNJ]

Not knowing all the facts, see if this helps with your scenario

https://www.mtgprofessor.com/A%20-%2...quity_gift.htm

also, see

TheTaxBook News.

Release Date: 10/9/17

Amount Realized Reduced by Gift of Equity

Cross References

Fiscalini, T.C. Memo. 2017-163, August 24, 2017

[Rapid Robert]

Can the "Gift of Equity" be subtracted from the Gross sales price, OR, added to the basis??

I more or less recall your recent post on this same subject, so without going back to refresh my memory, my answer is in two parts:

1. Seller: yes, the gift to the daughter should be a negative adjustment to the gross proceeds, because it is not taxable income to the seller, and does not represent any actual money received by the seller. The seller should probably still show the 1099-S amount on the return as the starting point, in the interest of full disclosure.

2. Buyer: no, the gift amount itself is not added to the basis of the newly acquired property. Rather, the basis in the hands of the donor (parents) becomes the new basis in the hands of the donee (daughter). From the numbers I recall you providing in the original, I would wager a modest sum that the basis to the daughter of the gift portion of the property is zero. If the actual cash proceeds to the parents (not including the gift) less expense of sale paid by the parents exceeds the parent's adjusted basis, then this would definitely be true.

I suppose you could come up with some scheme to instead have the parents include the gift portion in their taxable income, while allowing the daughter to add to her basis, but I don't think it would be correct, and in any event, you can't do both (subtract from gross sales price and also add to new basis).

[New York Enrolled Agent]

RR - is this of any help? Reg. §1.1015-4 discusses part sale/part gift

(b) Examples . The rule of paragraph (a) of this section is illustrated by the following examples:

Example 1. If A transfers property to his son for $30,000, and such property at the time of the transfer has an adjusted basis of $30,000 in A's hands (and a fair market value of $60,000), the unadjusted basis of the property in the hands of the son is $30,000.

Example 2. If A transfers property to his son for $60,000, and such property at the time of transfer has an adjusted basis of $30,000 in A's hands (and a fair market value of $90,000), the unadjusted basis of such property in the hands of the son is $60,000.

Example 3. If A transfers property to his son for $30,000, and such property at the time of transfer has an adjusted basis in A's hands of $60,000 (and a fair market value of $90,000), the unadjusted basis of such property in the hands of the son is $60,000.

Example 4. If A transfers property to his son for $30,000 and such property at the time of transfer has an adjusted basis of $90,000 in A's hands (and a fair market value of $60,000), the unadjusted basis of the property in the hands of the son ins $90,000. However, since the adjusted basis of the property in A's hands at the time of the transfer was greater than the fair market value at that time, for the purpose of determining any loss on a later sale or other disposition of the property by the son its unadjusted basis in his hands is $60,000.

[sdarave]

Thanks to all who took the time to share their valuable expertise with me. I appreciate good advice!


"Sapientia participatur magnam valorem"