Sale of Property-Gift of proceeds

[Bird Legs]

Client bought grandparents home. Converted it to rent property. told 2 siblings
when he bought it that when it was sold the proceeds would be divided between the 3 of
them.
Client sold the rent property in 2005 and did give each sibling 1/3 of sales price.
Question: This would be considered a gift and not a reduction of sales price, right?
Wrong? My aging brain is starting to catch up with the rest of me and sometimes
does not think right.
Appreciate your help.

[Joe Btfsplk]

Client bought grandparents home. Converted it to rent property. told 2 siblings
when he bought it that when it was sold the proceeds would be divided between the 3 of
them.
Client sold the rent property in 2005 and did give each sibling 1/3 of sales price.
Question: This would be considered a gift and not a reduction of sales price, right?
Wrong? My aging brain is starting to catch up with the rest of me and sometimes
does not think right.
Appreciate your help.

[1] Client bought the house.
[2] Client sold the house
[3] Client gave money to siblings.
Since the siblings were involved in neither the purchase or the sale since only the client had ownership, the money he gave the siblings was a gift.

The gift to the siblings was not an expense of the sale.

[jainen]

gift tax return

Since the sale and gifts were all steps in a single, planned transaction, and the seller didn't end up with the money, I think it is a reduction in sale price (seller claims a capital loss) and the buyer has to use the lower price as basis and also has to file the Form 706 gift tax return!

[OldJack]

I agree with Joe. It appears from the post that this is a gift from the seller as the seller had no legal requirement to pay or gift anything to the siblings. I do not see this as all just steps in one transaction. Also, this is a real estate transaction where paperwork is considered more factual than any verbal agreement and where clear title passes.

I would reconsider my opinion if the seller did not pay a fair market value for the property purchased from grandparents and as such it appears he was only owning the property for his inheritance protection and that of his siblings.

[Unregistered]

This is clearly a gift to the siblings. No need for a crystal ball on this one.

[Unregistered]

Since the sale and gifts were all steps in a single, planned transaction, and the seller didn't end up with the money, I think it is a reduction in sale price (seller claims a capital loss) and the buyer has to use the lower price as basis and also has to file the Form 706 gift tax return!

Using that logic, if I sell stock at a loss and give the proceeds to a charity I can't deduct the loss.

[jainen]

Logic?

Logic? We ain't got no logic. We don't need no logic! I don't have to show you any stinkin' logic!!

[Joe Btfsplk]

Valid point

Logic? We ain't got no logic. We don't need no logic! I don't have to show you any stinkin' logic!!

You really hit the nail on the head. After all, what has logic got to do with income tax?