don't know if this is the right board or not..We owned a house and our adult kids moved in. They were to buy the house for a nominal amount and put the mortgage in their name. IT never happened. The market went sky high 6 years later & we offered them rock bottom price. At this point they said we gave them the house & they wanted all of the equity. They ended up moving, we sold the house, and gave them $40,000. cash which they want tax free. WE now are looking at capital gains since we didn't live there for 2 of last 5 years. The property was in our name and it really wasn't a rental ( maybe it was!)and it was less than a mile from our home so it wasn't a second home. It remained in our name. Do we send the kids a 1099? Any ideas how to avoid all of the capital gains? Kids not speaking to us now! We didn't feel we could quit claim it to them as they were angry with us. Any ideas? Thank-you.
You may want to post this on the Tax Strategies board. It sounds like you have some problems. The $40,000 sounds like a gift, so it would be tax free to them. Personally, I wouldn't have given them the money without some sort of agreement for them to at least help pay the taxes. If you had put the house in their name, then you certainly would have run into gift tax issues as well. It is also possible that you will have to recapture depreciation, even though you did not charge rent and probably did not claim any depreciation during the time they were living there.I find it reprehensible that your kids could be angry at you for giving them $40,000 as well as a free place to live for 5 years. Did they pay for anything while they were living there? I'll bet you paid all the property taxes as well. To my way of thinking, it sounds like you have already given them their inheritance.foolazis
The devil is in the details: were there a written contract when the property was sold to the kids, and was it recorded? Was there a written contract when the property was sold by the kids back to you and was it recorded? What payments did the kids actually make to you? There are issues here that deal with real estate law, issues that deal with tax laws (and possibly gift tax issues, which may mean filing a gift tax form showing that you and your spouse had gifted to multiple individuals unless there were separate checks, each $11,000 or less, between individuals, so no person->person transfer for the year was over $11,000).The Tax Strategies board will need those details because if there were written contracts and the transfer of property recorded, there is one set of issues; if there were only verbal contracts (which aren't binding for real estate) between you and your children, there is another set of issues that get a completely different set of treatments (e.g., even though it was called a sales, it may have actually been a rental with you gifting rent to them if they weren't paying rent).But, yes, for tax issues, the Tax Strategies Board is the best place to ask--after the details are understood.
The $40K definitely sounds like a gift. In which case it would be tax free to them, and you would need to file a gift tax return. But unless you've been very generous in the past, it won't cost you a penny, it will just use up some of your exemption.The only thing I can think of, is if you treat it as a rental, you could consider the expenses a rental loss perhaps. But i'm not sure how you would've had to treat that.Btw, if you had given them the house, or even sold it at a rock bottom price, that could trigger gift tax too.I agree that your kids are being very greedy, but you also have to face the facts that you've been enabling them to be doing so. They have to learn to support themselves, and hopefully you've learned that.
virvid,Two things - 1) Visit the Tax Strategy Board and you will have to provide some more details. (did they make payments, fix things, contracts) There are some really good tax folks there.2) Get new Kids! I have some available - check my eBay ad.My quick take is that if there is nothing in writing (as it needs to be for real estate) then they never purchased or were given the house. It was still yours. You have now sold it so you are responsible for the taxes. The kids were not responsible for anything and so the money that they got was a very nice gift. There may be a way to have the pay some taxes, but I do not beleive it would relieve you of your tax liability- see Tax Strategy Board.DrTarrRock Bottom price of I will rent the truck to move their $@@ out.
TAX STRATEGY BOARDhttp://boards.fool.com/Messages.asp?mid=23408480&bid=100155
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