Tax Guidance - Unique Situation

[Justin Nicolette]

Hello,

I have a fairly unique situation where I purchased a home for my son and his then wife, but they put down the down payment, and have made all payments and repairs on the home since living in it.  This was a situation where neither my son or his wife's credit were good enough to obtain a mortgage, but they had plenty of savings and income.  Now they are getting a divorce and the topic of splitting the proceeds from the sale of the home has become a sticky subject.  My understanding of the situation was that capital gains would be owed on all profits minus closing and realtor fees.  In this case, the purchase price was 100k, the sale price was 137k, and total closing fees, all said and done, were roughly 10k, which I would take to mean a capital gains hit of 15% on 27k, (since my son and his wife paid for all upgrades/updates to the home, I realize I won't be able to deduct these as capital improvements).  Here is the catch, I just spoke with an accountant at one of the big box chains, who calculated that the capital gains hit will be $6079, which, if my math is correct, 15% of 27K is $4050 - She said we have to take into account the down payment and include that in the calculation, which seems insane to me. 

Can someone help me out?  Not looking for definite answers on anything, but more guidance on where to turn. 

Thank you for all your help.

- J

[Steven Hamilton II]

They are way wrong.  And they should have brought up the option of reporting the gain as their by use of the nominee process. There is a reason for a title process to be listed. The chain preparer was definitely out of their league in giving you accurate advice. 

At minimum you could list the payments out to them as a selling expense. (not recommended)