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March 31, 2021
Question

capital gains

  • March 31, 2021
  • 1 reply
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selling my home of 40 years to son through quit claim deed to cap property taxes in MI, and seller financed.  Do I have to pay capital gains and when?

    1 reply

    March 31, 2021

    If this is an actual sale (sold at FMV and new recorded deed), then you may have a capital gain in the year of the sale but may also be able to exclude all or part of that gain from taxable income..

     

    From IRS Topic No. 701 Sale of Your Home:

     

    If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse.

     

    You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you're not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements, limitations on the exclusion amount, and exceptions to the two-year rule.

     

    Enter "sale of home" in the Search Box of TurboTax, then select "jump to sale of home" from the results. See attached screen for aid in navigation.

     

    Since you sold the home to a related party, there may be an issue on whether the sale price was  artificially low. If that is the case, any "discount" from FMV would be subject to gift tax laws and may require reporting. 

     

    Unfortunately, you won't be able to file a Gift Tax Return with TurboTax.  A Gift Tax return should be filed separately from your personal income tax return as it has no effect on taxation at the individual level.  

     

    The IRS provides Form 709 and Instructions here:

    Form: Form 709

    Instructions: Form 709 Instructions