Capital Gains Tax Question

[Tommy Cheng]

Hi BP!

I was hoping somebody could help me answer who would pay the capital gains on my primary residence after selling.

Details:

-My name along with both my parents' names are on the deed

-I've lived in the place for 5 years, my parents have not lived there at all

-I've paid all the mortgage, taxes, insurance, utilities, etc. throughout that time

With all that information, would all the capital gains tax be my responsibility or would it be divided between the 3 on the deed? Basically, I want to be the only one responsible for the capital gains tax after the $250,000 deduction. 

Does anybody know how this works?

[David M.]

@Tommy Cheng

Double check with a qualified professional or two (e.g. accounant and/or attorney).  It should start with how Title is held.  I'm guessing its just Tenancy in Common or something similar.  So, the capital gains would be distributed three ways (maybe 2 assuming your parents are still married... ???), then the sec121 exclusion would be applied.

So, for example, if the profit was $120k then each of you would have $40k of capital gains to report.  Your return would "show" the 40k and theirs would show $40k or $80k (depending if they were filing jointly or not).  Since its not their primary residence, they wouldn't be able to apply the sec121 exclusion.

You need to talk to a specialist or more knowledgable person on how to be more tax efficient.  I am guessing one way to go would be for your parents to gift you their interest in the property so they would come off the Title.  The IRS has a $15k annual limit per person so between your two parents they could gift you $30k annually.  If you don't have time to wait to annually keep moving their interest in the property to you, I think the liftime gift exemption is up to $11Mil (and I hear "something" about Biden doing "some sort"  of legislation about it) so they could claim it against the lifetime cap and gift their entire interest in the property to you.

I hope that helps, and maybe one of the accountants like Plaks or McElroy or Sidiqqi will chime in.

Good luck.