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Time to figure out the capital gains now.

Piecing together the two posts, I'm still not sure whether you had a not-for-profit rental or a second home (there's no mileage requirement). I'll repeat my advice to consult an accountant.

While you're there, find out what kind of gift tax paperwork you have to do. The $40,000 was a gift from you to them, and the donor bears the gift tax responsibility. There won't be any gift tax due, but you may have to file a return, depending on how the payment was made.

No, you don't send them a 1099. They didn't sell anything, so they have no sale to report, and gifts aren't taxable income.

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