All Forum Posts by: Eddie L.

@Tom Seigold

Can give me some hypothetical or actual numbers to check if my formulas still work

@Tom Seigold

You want formulas instead? Pretty sure I just did it in Google sheets last time because I wanted to double check the numbers. Wasn't down to the cent but fairly close.

*Not a CPA*

You would be considered a non-resident co-owner. In which case your portion of the property is an investment in your hands. You would be deducting relevant rental expenses such as mortgage interest, maintenance, property taxes, hoa, etc. throughout the years and reporting rental income if any from your son. How was the initial purchase of the house even structured? Was it purchased under your name then you gifted a portion of it to your son?

@Jake Paul Interesting scenario. Has your brother been reporting his 25% interest as rental property and the $600/month as rental income offsetting with relevant deductions such as mortgage interest (if any), property taxes, maintenance, HOA, depreciation, etc.? He can gift you his 25% but you'll be the one subject for the gains on that later... Your plan is for him to gift it to you and you promise him a percentage of your next property as proceeds?......

50% of $104,000 which means $52,000 of depreciable basis since you rented out 50% of your property. Corrected in another thread.

https://www.biggerpockets.com/...

I suggest two things. 

1. Pull other great CPAs from the forum into this topic. Always good.

2. Generally if your sale is tax free you're not even reporting it on the return so probably less audit risk there. The audit risk may come when the real estate agent of the sale issues you a Form 1099-S for the sale and that same Form 1099-S like your W-2s gets reported to the IRS. The IRS would then be expecting your gain in your tax return this year. Speak with the real estate agent to make sure they're totally fine with not issuing a Form 1099-S to you given that you're eligible for the exclusion.

https://turbotax.intuit.com/ta...

Do I have to report the home sale on my return?

You generally need to report the sale of your home on your tax return if you received a Form 1099-S or if you do not meet the requirements for excluding the gain on the sale of your home. See: Do I have to pay taxes on the profit I made selling my home? above.

Form 1099-S: Proceeds from Real Estate Transactions is generally issued by the real estate closing agent—a title company, real estate broker or mortgage company.

To avoid getting this form (and having a copy sent to the IRS), you must give the agent some assurances at any time before February 15 of the year after the sale that all the profit on the sale is tax-free.

To do so, you must assure the agent that:

1. You owned and used the residence as your principal residence for periods totaling at least two years during the five-year period ending on the date of the sale of the residence.
2. You have not sold or exchanged another principal residence during the two-year period ending on the date of the sale or exchange of the residence.
3. No portion of the residence was used for business or rental purposes by you or your spouse.
4. At least one of the following three statements applies: (1) The sale price is $250,000 or less; (2) You are married, the sale price is $500,000 or less, and the gain on the sale is $250,000 or less; (3)You are married, the sale price is $500,000 or less, and:

• You intend to file a joint return for the year of the sale or exchange.
• Your spouse also used the residence as his or her principal residence for periods totaling two years or more during the five years ending on the date of the sale.
• Your spouse also has not sold or exchanged another principal residence during the two-year period ending on the date of the sale or exchange of the residence.

Essentially, the IRS does not require the real estate agent who closes the deal to use Form 1099-S to report a home sale amounting to $250,000 or less ($500,000 or less for married couples filing jointly).

• You should not receive a Form 1099-S from the real estate closing agent if you made these assurances.
• If you don't receive the form, you don't need to report your home sale at all on your income tax return.

If you did receive a Form 1099-S, that means the IRS got a copy as well. That doesn't necessarily mean you owe tax on the sale, though.

• It could be a mistake, or the closing agent might not have had the proper paperwork.
• If you qualify for the exclusion to make all of your profit tax-free, don't report the home sale.
• Do make sure all your paperwork is in order to show the IRS if it asks.

@John Clark

Are you referring to the annual gift exclusion? My understanding is that gifts are never subject to income tax. The person giving the gift ("Donor") will have to file a Form 709 in the event that he/she gifted more than the annual exclusion to that recipient ("Donee"). If the gift has excluded the Donor's lifetime exemption then the Donor will be subject to gift/estate tax on that excess. Single filer's lifetime exemption for 2021 was $11.7 million.

*Not a CPA*

Based on the IRS publication, ownership requirement needs to be met by just one spouse but use requirement needs to be met by both spouses. Assuming your wife doesn't own another property, I think the IRS will just make the assumption that you were both using this property as both of your primary residence. Albeit your question is more of in practice what has been provided in actual audit... I wonder...not sure... Your wife's license or state ID at least has the same address right?....

Determine whether you meet the ownership requirement.

If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement. For a married couple filing jointly, only one spouse has to meet the ownership requirement.

Determine whether you meet the residence requirement.

If you owned the home and used it as your residence for at least 24 months of the previous 5 years, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period, and it doesn't have to be a single block of time. All that is required is a total of 24 months (730 days) of residence during the 5-year period. Unlike the ownership requirement, each spouse must meet the residence requirement individually for a married couple filing jointly to get the full exclusion.

https://www.irs.gov/publicatio...

*Not CPA*

The exemption can be taken once every 2 years. You can sell both at the same time, but you can only apply the Sec 121 exclusion/exemption to one of them. 

1. For first property where it was primary residence for 2 years and rented for 2 years, only 50% (2 years primary over 4 years of ownership) of the gain would be eligible for the exclusion. For example, if your gain is $300k then $150k is eligible for the $250k exclusion (single filer) while the other $150k will be subject to tax the same way as if you sold a normal rental property. That is because those rental 2 years are considered non-qualified use under IRC §121(b)(5) or the section under "Business or Rental Use of Home" in the IRS Publication 523.

2. For second property where it was primary residence for 2 years out of 2 years ownership, it would be eligible for full $250k exclusion (single filer).

References

Publication 523 (2021), Selling Your Home

https://www.irs.gov/publicatio...

IRC § 121 - Exclusion of gain from sale of principal residence

https://www.law.cornell.edu/us...

I don't follow either. This should be filed as one partnership return issuing two K-1s for each of you. Not sure how you can have two separate tax forms at the end of the day...