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This is a bit tricky. My parents bought a house in 1995. In 2005, we refinanced and put my name on the mortgage and deed. My parents names are still on as well. I have been living there since. The house was not gifted or quick claimed to me. I was just added. I am planning to sell the house and am being given conflicting advice in regards to capital gains. We were told that as long as the house was sold under my name and SS#, that we would not have to pay as I have been the one living there and paying the mortgage. However we were also told that since my father was the original purchaser of the house, that he is the one who should sell, not me, and therefore he would be liable for the gains as he doesn't live there. Can anyone help.. I don't want my father to end up with a hefty capital gains tax, but we really need to sell the house. thanks so much!!
Thanks.. the two anwers we got were from his accountant and mine.. both diffrent.. don't know who to believe. His accountant says it's fine... mine said no. Was just hoping to get a third party opinion.
Yep, it sounds like it would be best for you to consult with a qualified tax attorney...or at least a very experienced accountant. When your parents purchased the house, was it used as their principal residence or as a rental? Did they intend to gift the house to you, or do they anticipate sharing in the proceeds of the sale? What was the original purchase price and what was the amount of refinancing involved? Do you presently own the house equally as joint tenants or is there some other arrangement as to apportionment of ownership? I'm sure that whomever you consult with will need to analyze these and other questoins pertaining to your ownership. Make sure to ask if there's something which can be done, such as having your parents quit claim the house to you (or sell their interest), to assure that only you would be liable for (or exempt from) capital gains tax. Maybe it's too late for that, but it doesn't hurt to ask.
Yep, it sounds like it would be best for you to consult with a qualified tax attorney...or at least a very experienced accountant. When your parents purchased the house, was it used as their principal residence or as a rental? Did they intend to gift the house to you, or do they anticipate sharing in the proceeds of the sale? What was the original purchase price and what was the amount of refinancing involved? Do you presently own the house equally as joint tenants or is there some other arrangement as to apportionment of ownership? I'm sure that whomever you consult with will need to analyze these and other questoins pertaining to your ownership. Make sure to ask if there's something which can be done, such as having your parents quit claim the house to you (or sell their interest), to assure that only you would be liable for (or exempt from) capital gains tax. Maybe it's too late for that, but it doesn't hurt to ask.
How they hold title is really important. I tend to think the CPA that said the father will be responsible for capital gains is right. In Oregon they would hold title as tenants in common, but the daughter has it as her primary residence where the parents do not. As such the parents are subject to capital gains. I do think that if they did a quit claim deed and she holds full title, then it would be fine as she was the sole owner at the time but that would be a tax attorney question. I agree that should be asked of an attorney or CPA.
OP you can't sell a house under your name only if your parents are on the title. All owners have to sign the closing documents and all owners appear on the HUD-1 statement.
This isn't to be construed as legal advice, but once your name was 'put on title' then you were indeed gifted the house. You can't just assume ownership by putting your name on a deed and ignore that the fact that you didn't pay anything for the asset that you are now part owner of.
You might be in a situation where you owe gift tax as of the effective date of the deed and your basis might have to be calculated as of that date. Any gain on the sale will probably be appropriate split according to everyone's interest in the property. In any event, you need an attorney/accountaint to figure this all out, and by all means don't rely upon my advice but my Dad was in a similar situation with a brother of his who put my Dad on the deed to his house prior to his death and it created some big taxation problems.
This is a bit tricky. My parents bought a house in 1995. In 2005, we refinanced and put my name on the mortgage and deed. My parents names are still on as well. I have been living there since. The house was not gifted or quick claimed to me. I was just added. I am planning to sell the house and am being given conflicting advice in regards to capital gains. We were told that as long as the house was sold under my name and SS#, that we would not have to pay as I have been the one living there and paying the mortgage. However we were also told that since my father was the original purchaser of the house, that he is the one who should sell, not me, and therefore he would be liable for the gains as he doesn't live there. Can anyone help.. I don't want my father to end up with a hefty capital gains tax, but we really need to sell the house. thanks so much!!
Sorry this is going to be a long explanation but it is not an easy situation, also understand upfront without knowing every little detail I cannot give you legal advice.
That being said up until about 3 years ago I worked as an accountant with a tax specialty for 5 years and I worked with an Enrolled Agent (which is the IRS definition of a tax expert) with 30 years experience, the way we used to treat this situation is that each of you own 1/3 of the property. Once they put you on the deed you became a partial owner but they also still have their ownership interest in the home. Now to prove that you acted as a partial owner you have to have been at least partially responsible for the payment, your parents being the original owners are already considered to have ownership interest. You will also keep the same basis of the price that they originally paid for the house, meaning you be able to use your exclusion for sale of a personal residence writing off your third of the profit, and your parents would have to claim a capital gain of 1/3 each of the profit.
For an Example
$120,000 Original Purchase Price
/ 3,
= $40,000 each parties share of the original cost basis on the property.
$180,000 sale price
/3
= $60,000 gross income each party
- $40,000 cost basis
=$20,000 net profit.
Your share =$20,000 -$20,000 sale of personal residence exclusion= 0 taxable gain.
each of your parents= $20,000 tax capital gain.
Now this is assuming they did not write off depreciation or anything as a rental prior to adding you to the deed.
If you never made a payment, and you were just added to the deed, then you will have to look at the appraisal of when the house was deeded to you as opposed to the equity they had in the house when they added you to the loan, if it is over the gift tax amount, then you will owe gift tax on that part of the equity.
Hopefully this should give you an idea but I would talk more to the accountants you have, and find out the basis of their standings on it, as one will have your parents significantly underpaying taxes with a resultant no capital gains paid, and the other will have your parents overpaying taxes significantly. find a tax specialist and not just a guy at HR Block or whatever other franchise or a CPA who does not deal with complicated personal taxes (little known fact is that only 5% of the CPA test has to do with personal taxes, literally a CPA can know nothing about taxes and become a CPA). We had tax returns such as this audited and come back with no change, meaning once the situation and the way we handled the situation was explained to the IRS agent they accepted the returns as originally submitted.
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