Unsure how to handle???

[peggysioux]

Have a taxpayer who has a couple of different situations that I am unsure how to handle: 1. In 2002 taxpayer and adult child purchased home together for $112,348; parent put down payment of $57,368 and child made mortgage payments to date. They used home as rental until 2006 and split all income and expenses. In 2006, child reimbursed parent $50,000 and parent deeded home over to child. Home is now worth more than originally purchased, but parent only wanted the $50,000 - how should this be handled? Would this be considered a gift?? Would unrecaptured section 1250 gain come into play at all??

2. Taxpayer had another adult child who was having a difficult time coping with life, holding a job or anything else several years ago, so child deeded over house to parent and parent rented house out for several years using the basis that the child paid for the house (I did not handle these previous year's tax returns). Now in 2006, adult child got his life back together and parent deeded house back to child; no money passed. How should this be handled???

What a mess!!!

[OldJack]

Any way you go could be considered wrong by someone. Figure out the various ways of treating each situation and present the results as options to the client for their decision. Document the client meeting so this does not come back and bite you.

[peggysioux]

No sale of property

On the second scenario, where there was no sale and no transfer of money, only property deeded back and forth between related family members, would father have to report as gift being home was originally owned by son? Also, how should the past years of depreciation taken by parent be handled if home is no longer being used as rental and son is once again living in it. Taxpayer just wants to have nothing filed regarding property.

I just discovered that on first scenario, daughter sold rental after parent deeded home to daughter after she paid him $50,000. Being daughter was basically gifted a portion of the house, would she then have to claim 100% of the unrecaptured 1250 depreciation. She only claimed 50% during the rental usage (parent claimed the other 50%)

[WhiteOleander]

Have a taxpayer who has a couple of different situations that I am unsure how to handle: 1. In 2002 taxpayer and adult child purchased home together for $112,348; parent put down payment of $57,368 and child made mortgage payments to date. They used home as rental until 2006 and split all income and expenses. In 2006, child reimbursed parent $50,000 and parent deeded home over to child. Home is now worth more than originally purchased, but parent only wanted the $50,000 - how should this be handled? Would this be considered a gift?? Would unrecaptured section 1250 gain come into play at all??

2. Taxpayer had another adult child who was having a difficult time coping with life, holding a job or anything else several years ago, so child deeded over house to parent and parent rented house out for several years using the basis that the child paid for the house (I did not handle these previous year's tax returns). Now in 2006, adult child got his life back together and parent deeded house back to child; no money passed. How should this be handled???

What a mess!!!

Ok, this is my take on it.

1st scenario, Parent and child purchased house together. Then, mother sold her interest to the child. But, sold it at a loss. Since it is a related party, mother cannot deduct the loss. Child owns the property now with all the depreciation to be accounted for by child when the property is sold. However, she adds the $50,000 paid to her by mother to her basis.

Second scenario, there should have been a gift tax return done by son when he deeded house to father. Now father needs to do a gift tax return deeding house back to son. Son will have the depreciation to account for when he sells or otherwise disposes of property. Just because T/P doesn't want to file the returns, doesn't make it OK.

[peggysioux]

Unsure how to handle?

Thanks for your take - I appreciate your breaking it down for me. I realize that how client wanted to handle was not correct, but needed some input from other tax preparers. This site is so helpful to us tax preparers in a small office.

[peggysioux]

Parent deeded property over to adult child

In running the numbers for scenario one where adult child basically bought out parent's share of home for $50,000; when I add the basis of home ($115,348 -parent's share of basis) and liability that the parent was relieved of ($75,000) and take into consideration depreciation taken from 2002 through 2005 (11,933), it appears parent has a gain of approx. $21,000.

White Oleander, you had mentioned that child would account for all depreciation when and if she sold house down the road, but wouldn't I need to file a 4797 for parent and child transfer and depreciation be accounted for at that point? Appreciate any input; want to make sure I am not missing anything.

Thanks!!

Peg

[WhiteOleander]

In running the numbers for scenario one where adult child basically bought out parent's share of home for $50,000; when I add the basis of home ($115,348 -parent's share of basis) and liability that the parent was relieved of ($75,000) and take into consideration depreciation taken from 2002 through 2005 (11,933), it appears parent has a gain of approx. $21,000.

White Oleander, you had mentioned that child would account for all depreciation when and if she sold house down the road, but wouldn't I need to file a 4797 for parent and child transfer and depreciation be accounted for at that point? Appreciate any input; want to make sure I am not missing anything.

Thanks!!

Peg

I'm sorry. I was mixing gifting and selling property. If it was indeed sold to the daughter, the mother will account for her share of the depr. in that sale. The daughter will not pick that depr up.

But, be sure that the liability was actually in the mother's name to begin with. It might have been in the daughter's name only at first. If so, there would be not liabllity assumed by the daughter. Also, make sure if the mother was on the original, that the mortgage company actually did remove her from the loan.

This may be just a deal between the mother and daughter with no real money changing hands.

[peggysioux]

White Oleander or Whoever Else Could

provide some input - new client got back to me and advised me that mother's name was never on mortgage loan; however, when both parties filed tax returns from 2002 to 2005, both parties claimed 50% of income and expenses of rental. So, in 2002, parents helped daughter out by putting $50,000 down on rental and daughter paid taxes and mortgage loan from 2002 to 2005. Parents and daughter's name were on deed, but only daughter's name on loan. In 2006, daughter paid the $50,000 back to parents and parent's name was deleted from deed. So, would the parent's portion of ownership be 22% ($50,000/$230696-basis of house)? Being parent claimed all income and expenses on schedule E at 50%, how does that work into problem?? Any help would be greatly appreciated.

[WhiteOleander]

I'm not sure the parents ever did have an ownership in the property. It sounds like they just loaned her 50000 to help her get into the house and daughter has paid back the loan.

Just because they were splitting income/expenses in prior years does not make that correct.

I really don't know how they could be put on the deed and taken off without the mortgage compnay howling. Just seems weird to me.

Not much help to you. But, I think the daughter has been the only owner all along.