Reporting "Gift of Equity" Form 4797??

[sea-tax]

"By the way Sea-tax... I don't consider myself as any heavy-hitter. I am just an old-fart that has been around for a long time in this business and still have a lot to learn."-old Jack


Old jack I was just trying to interject a little humor to a seemingly heated thread. Unfortunately I am not as good at it as Black Bart is but absent his abilities I try anyways.

BTW calling BB...calling BB come in BB .

[OldJack]

See-tax.. I smiled at your post, especially the ding-ding! Your humor was obvious. Its not my intent to cause a heated thread... I just have to disagree sometimes when I think I am right and someone else is off on a tangent. Its easy to misinterpret ones emotions when all that is there is written words.

[Unregistered]

You guys keeping talking about getting a loan at FMV, where do you see in the post the loan amount? I don't read anything about upping the price to increase the loan amount. Or is this equity/cash gift supposed to be the increase for the loan, if it is, we should still know how much the loan is for.

[OldJack]

The closing statement is reporting the sale as if the niece bought the house at fair market value, with the difference between the actual purchase price and the fair market value listed as “gift equity.” I suppose they did this so that the niece could qualify for a larger mortgage and maybe even pull some cash out of the deal.

I guess the idea that the gift was so the niece could get a larger loan came into the discussion from the above quote. Although we don't really know it is likely that it is true.

[Bees Knees]

As to my not providing citations, likewise, where are your citations for your position? Whats your problem, do you just not like anyone disagreeing with you?

I did provide citations. Section 1250(d) says the disposition by gift is not subject to tax. The taxpayer’s intent clearly was to dispose of a portion of the property by gift.

Regarding your quote on a "cash" gift verses a "equity" gift. Equity gifts are made all the time as part gifts of real estate or other estate assets and just like a cash gift they require a gift tax return if over the limit. You know better than make a statement like that.

And where did I suggest the taxpayer did not need to file a gift tax return? Of course a gift tax return is required. What’s your point?

I might also point out that if the so called fair-market-value sale price is not considered to be the true sale price, then the taxpayer may be a party to fraudulent acquiring a loan from a loan company for his niece. That is assuming the sale price was inflated intentionally without an "equity gift" and only for the purpose of getting a loan.

I agree with you on this one. Unless the gift of equity is clearly marked on the closing statement as a separate line item.

I am not getting paid to provide code or do research for you or this poster and I did not know posting ones opinion on this forum required the same. Maybe you are getting paid to post as part of your job?

Everyone appreciates your opinions. Citations are not required.

They are suggested, however, if you insist on arguing something with me. I have provided opinions based on cited tax law. If you disagree with my opinion, fine. If however, you wish to “win” a debate in the minds of those on the sidelines, you might consider backing up your position. The citation comment was in regards to you saying what the courts and IRS would do. A citation of what they did in the past would support what you say they would do in the future. Absent a citation, you are shooting from the hip and don't really know.

As to getting paid, the intangible value of arguing tax law on this board serves the same purpose as that of colleagues debating tax issues in the office. The education we all receive on this board is free of charge…no obligation on anyone’s part to purchase anything.

I suspect that is why you keep hanging around and arguing with me.

[Unregistered-I was]

I like this

If you sell your rental house for $100,000 and say to the buyer I will gift you $20,000-does that mean that reduces the selling price by $20. I have never heard of that. The sale price is $100,000 to calculate your gain. If you can show that the FMV was only $80,000 that would change my mind, if the only number that hits anywhere is the $80,000.

[OldJack]

I suspect that is why you keep hanging around and arguing with me.

I take it you would like me NOT to hang around because I disagree with you when you are wrong.

You are confusing a gift and gift tax laws with the sale price in this case. How the parties came about negotiating the sale price is immaterial. The fact is both parties agree on a sale price by signing a closing statement or such document showing the same. You obviously have taken the position that you would like to ignore that sale price and you call it incorrect if reported on the 1099. You have no valid cite for this argument other than to try to use a gift tax cite which is irrelevant to the agreed sale price.

As far as "adding" the gift value to cost basis you have no cite for that because there is no cite to support such. The gift was most likely shown in the same classification on the closing statement as is a payoff of a sellers mortgage and that also does not add to the cost basis because both are only an explanation of subtraction of proceeds due the seller.

True, a gift is not taxable but a sale price is the number used to determine taxable gain.

You danced around my question. "Maybe you are getting paid to post as part of your job?" Is that why you get so upset when someone disagrees with you? If so I can understand why you insist on citations "if I am going to argue with you".

[Bees Knees]

If you sell your rental house for $100,000 and say to the buyer I will gift you $20,000-does that mean that reduces the selling price by $20. I have never heard of that. The sale price is $100,000 to calculate your gain. If you can show that the FMV was only $80,000 that would change my mind, if the only number that hits anywhere is the $80,000.

Interesting comment. However, to put your numbers in the case we are arguing about, the selling price was $80,000, plus $20,000 treated as "gift" equity. Section 1250(d) says that is not taxable.

[Bees Knees]

I take it you would like me NOT to hang around because I disagree with you when you are wrong.

And where did you get that impression? I'm sorry if you got the wrong idea.

[Unregistered]

Kellyoakes

My client has received a 1099 for the sale price listed on the closing doc.

Look like you should have the real estate company reissue the 1099-S,

Box 2 on the 1099-S should only show the Gross Proceeds.

Gross Proceeds means any cash received or liability to be received for the real property by or on behalf of the transferor.

Gross Proceeds do not include the value of property or services received or to be received by, or on behalf of, the transferor or separately stated cash received for personal property.

Per instruction box 2 1099-S

[Bees Knees]

You are confusing a gift and gift tax laws with the sale price in this case. How the parties came about negotiating the sale price is immaterial. The fact is both parties agree on a sale price by signing a closing statement or such document showing the same. You obviously have taken the position that you would like to ignore that sale price and you call it incorrect if reported on the 1099.

I am not confusing gift and gift tax laws with the sale price in this case. The sales price is the amount the seller received for selling the property. The seller negotiated a reduced amount for the sale and "gifted" the rest of the equity to the buyer. That is why a "Equity Gift Affidavit" was signed.

Again, we do not know if that was a separate line item on the sales contract. Regardless, it was a part of the paperwork for the sale. Thus, in the seller's mind, the difference between FMV and actual cash received was treated as a gift to the buyer. Section 1250(d) says property disposed of by means of a gift is not taxable.

[Bees Knees]

You danced around my question. "Maybe you are getting paid to post as part of your job?" Is that why you get so upset when someone disagrees with you? If so I can understand why you insist on citations "if I am going to argue with you".

You know what I get paid to do. So do many others who post on this message board. Did you think it was some kind of secret or something?

And no, I do not get upset when you argue with me. Actually, it brings excitement to this board. I'm sure there are many out there who enjoy the drama. It makes this message board the most popular site in the business. All others are boring in comparison. Thanks for being a cast member, OldJack. Call my agent and we'll see if we can stick you on the payroll somehow.

[OldJack]

Again, we do not know if that was a separate line item on the sales contract. Regardless, it was a part of the paperwork for the sale. Thus, in the seller's mind, the difference between FMV and actual cash received was treated as a gift to the buyer. Section 1250(d) says property disposed of by means of a gift is not taxable.

As you say "in the seller's mind, the difference between FMV and actual cash received was treated as a gift." That is saying the same thing as "in lieu of my receiving the cash its OK to give the proceeds to the buyer" because I am getting the net of what I want.

Again, we do not know what is on the legal documents, but I would bet the gift is given credit to the buyer for the same in lieu of amount due in the same classification as mortgage subtracted from amount due.

I understand your contention that the seller gifted a portion of the sale price that we assume was stated on the legal documents. However, assuming the gift is documented on the closing statement in the section accounting for subtractions of proceeds, your cite of §1250 is not appropriate to this case as the seller is not gifting real estate §1250 property he is gifting proceeds from the sale of property.

If the gift and affidavit is not a part of the closing statement shown as subtraction of proceeds, I would agree with your position that any such transaction would not result in any taxable income to anyone. However, if you have practiced tax preparation very long you must have seen a few real estate closing documents. As to the sellers mind....

[OldJack]

Call my agent and we'll see if we can stick you on the payroll somehow.

And if others believe that they would also think I was the type that was in the market to buy a bridge.

[OldJack]

Kellyoakes


Look like you should have the real estate company reissue the 1099-S,

Box 2 on the 1099-S should only show the Gross Proceeds.

Gross Proceeds means any cash received or liability to be received for the real property by or on behalf of the transferor.

Gross Proceeds do not include the value of property or services received or to be received by, or on behalf of, the transferor or separately stated cash received for personal property.

Per instruction box 2 1099-S

Also note the instructions indicate that gross proceeds to report on the 1099S generally is the sale price on the closing statement. see quote.

Do not reduce gross proceeds by any expenses paid by
the transferor, such as sales commissions, deed
preparation, advertising, and legal expenses. If a Uniform
Settlement Statement (under RESPA) is used for a transfer
of real estate for cash and notes only, gross proceeds
generally will be the contract sales price shown on that
statement.