Sale of Condo

[JohnSpadaEA]

I have two clients that have been living together, unmarried, filing as single for several years. The guy owns a condo in FL and claims that as his primary residence. The woman owns a condo in MA and claims that as her primary residence. They both spend more than half the year in the state they claim as their home state. In 2000 they decide to put the guy on the deed of the condo in MA. I assume that they did this to pass the property to him in the event of her death.


I just got an email telling me that they have sold the condo in MA for a $175,000 gain. Of course the question comes up about the tax impact on the guy for the sale of his 50% of the condo.

The question I have is does the act of putting his name on the deed in fact create ownership? Did she gift 50% of the condo to him?

[Bees Knees]

joint tenancy gifts

I will give you the technically correct answer first. Putting someone’s name on real property as joint tenant is a completed gift (see QF page 15-7). A gift tax return must be filed, and the joint tenant is responsible for his or her share of the tax when the property is sold. Since he did not use the property as his principal residence, he does not qualify for the section 121 exclusion.

Now for the “off-the-record” answer. Calculate the tax the guy owes. Explain to them that all they needed to do to avoid such a huge tax hit was have the guy sign a quit claim deed before the sale so that the girlfriend would be the only listed owner. Or, another way to avoid the tax would be for the guy to claim he lived with his girlfriend for more than half the year for the last 2 years. If he does not get a separate 1099 for his share of the sale, the IRS would never know unless they looked at the closing statement for the sale seeing his name listed as a co-owner.

Now inform them that if you file the tax return for them, you will have to follow the rules since they already explained the details to you the way they did.

If they get the hint, you won’t see them again.

[Unregistered]

Need more research

I wonder if the title change alone does it. An old business partner had a cabin, very nice lake home and a house in the city. The wife changed her residence to the cabin, nicer than the house, kids all out of the house and they knew they were going to sell. About 2+ years later they sold the lake home using $250,000 exclusion, the gain was larger than that, but saved some good money. Now two more years later they are selling the residence and the $500,000 will more than cover that.. Revenue Procedure 2005-14 does not cover this, but does show they are still trying to figure out how to apply "Section 121"-good luck and let us know...

[jainen]

Burden of proof

In the real world I would do it that way. In my fantasy I hold the legally-weak position that a deed memorializes ownership but is not necessarily accurate. There could be other reasons for the deed (such as, in this case, probate planning) and there could be non-public agreements between the parties. The burden of proof is very high, very high, very high.