HOME SALE EXCLUSION - Spidell

HOME SALE EXCLUSION

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Message Board HOME SALE EXCLUSION

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    • #268586
      Steve Burriss
      Participant

      I HAVE A PARENT WHO BOUGHT A HOME FOR THEIR CHILD FIVE YEARS AGO. THE CHILD IS NOT THE LEGAL OWNER BUT BEEN PAYING AND DEDUCTING THE MORTGAGE INTEREST AS AN EQUITABLE OWNER. THE PARENT WHATS TO NOW SELL THE HOME. WILL THE PARENT OR THE CHILD BE ABLE TO TAKE THE HOME SALE EXCLUSION?

       

    • #268637
      Mark Bole
      Participant

      Neither one.  It has to be owned and lived in as principal residence for two out of five most recent years.  The owners don’t live in it.

    • #268646
      William Dewberry
      Participant

      If you can establish, prove, the concept of equitable ownership, the child can. They would meet both ownership and use.
      You’d want to be extremely certain in your position, and probably have the parent quit claim deed the home, and have child close escrow as seller. There is a leading tax court case on point here re equitable ownership of home, taxpayer won.

    • #268760
      Mark Bole
      Participant

      Equitable ownership as in the original question normally applies to Schedule A deductions for mortgage interest and property tax. To use the equitable ownership argument for Sec 121 seems fraught with peril.

      • If  parent gives the property to the child it would require a gift tax return.
      • The bank holding the mortgage would have to agree to transfer the debt to the child
      • If the child is required to give the net proceeds of the sale back to the parent, then it was not really a gift and it becomes a transaction strictly for the purpose of avoiding income tax and no other economic benefit – possibly a sham.  Parent simply trying to evade not only cap gains tax but possibly NII tax, additional Medicare surcharge due to increased AGI in year of sale, etc.

      It was mentioned there is a “leading court case” – specifically about Sec 121?  Citation?

      Here is a discussion from another forum which includes a lot of cites and analysis, including from a few well-respected contributors.  It would appear trying to claim Sec 121 based on equitable ownership is a major uphill battle.

      https://www.taxprotalk.com/forums/viewtopic.php?t=4110

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