Parents loaned me down payment for duplex, I sold it, now who pays capital gains?

[Robert M.]

In 2016 my parents loaned me the down payment for a rental property ($150k toward a $600k duplex in a midsize East Coast city). There were no formal terms or expectations - it was just "here's the money, don't be dumb". They didn't want to be on the deed, so it was in my name.

I hired a property manager and for the next few years things went smoothly. My cash flow was a little negative, but for the most part I did thing my parents told me to of paying down a mortgage using rental income.

By 2020 I had moved to a different state and a pandemic happened. I was relying on the manager for everything and it was getting expensive. Separately — and this is a more minor gripe — it was complicating my tax situation to pay state and local income taxes in a place I didn't live anymore.

I pitched to my parents that I would sell the place and roll it over into a comparable property closer to where I live. They gave a firm 'no' — for whatever reason, they were really attached to this duplex they had hardly even seen before. We couldn't reach a compromise, so finally I made the difficult decision to sell the place and give them 100% of the proceeds back. Lesson learned on going into business without exit plans, I guess...

For reasons out of scope here, I just filed my 2021 taxes and the IRS hit me with a $30k capital gains bill (not including interest or penalties). Which brings us to...

Ever since the bill came, we've been fighting over who's responsibility it is to pay it. Because I paid late I would obviously cover interest and penalties, but they're livid with me about the capital gains. They've said I need to learn to be more responsible, and that I'm endangering their financial wellbeing. (I will let you draw your own conclusions about my parents' finances given that they gave me a $150k down payment without much of a conversation about it.)

At the end of the day, I lost money on the property from owning and operating it, and my parents made a modest profit from the sale. I feel like the taxes should be paid from the proceeds, not from me as the go-between. I would really appreciate any opinions on this from an ethical standpoint. My parents are close to disowning me, and I want to do the right thing.