Capital gains with two co-signers

[Dario Miles]

I'm hoping this question belongs here.

My family bought a condo a long while back.  I'm looking to sell, looking at a possible $330k in gains.  The loan/deed has myself and my mom on it.

We won't be filing a joint return, obviously, so can the capital gain be split between us, each reporting $165k on our taxes and avoiding the $250k limit for capital gains taxes?

And if that is the case, I assume each one of us would be taxed on that $165k at the normal income tax rate, subject to gross income, deductions, etc?

And if the above is the case, I suppose it would still be better to try to 1031 it?

[Dario Miles]

I should add that it's been my primary and only residence for longer than 5 years.  My mom moved out over 5 years ago.

[Wayne Brooks]

Quote from @Dario Miles:

I should add that it's been my primary and only residence for longer than 5 years.  My mom moved out over 5 years ago.

For you, the exemption applies to your half. Your mom, since it has not been Her primary for over 3 years, she will pay cap gains tax. She wouldn’t be able to 1031 since the seller(s) of this property has to be the Same as the buyer(s) of the replacement property.

[Dave Foster]

@Dario Miles, Like @Wayne Brooks said you can get the primary residence exemption on your half of the sale.  You cannot 1031 because it is your primary.

Your mom cannot get the primary residence exemption because she has not lived in it for 2 out of the previous 5 years.  She might be able to do a 1031 on her half if she has treated it like an investment.  That would be a question for her accountant.  

If so then upon sale you would take the primary residence on your half.  And your mom would start a 1031 exchange on her half.  Wayne is right that taxpayers have to be the same on the old and new.  But she is a taxpayer for the old (50% of the old as she is on the deed).  So the 1031 exchange is on the 50% of the property that is in her name.  She would need to purchase the new property in her name.  Hers would be reported on her tax return.  Yours would be reported on your tax return.  

All very easy doable.

[Carlos Ptriawan]

Quote from @Dario Miles:

I'm hoping this question belongs here.

My family bought a condo a long while back.  I'm looking to sell, looking at a possible $330k in gains.  The loan/deed has myself and my mom on it.

We won't be filing a joint return, obviously, so can the capital gain be split between us, each reporting $165k on our taxes and avoiding the $250k limit for capital gains taxes?

And if that is the case, I assume each one of us would be taxed on that $165k at the normal income tax rate, subject to gross income, deductions, etc?

And if the above is the case, I suppose it would still be better to try to 1031 it?

Sorry but why dont you take your mom portion into you ? aka refi with your own name 100%, and then sell a year later.

[Mohammed Rahman]

Hey @Dario Miles - I recommend getting an answer from your CPA. It's worth the few hundred dollars you'll pay for the consultation and paperwork filing. 

As others have mentioned, likely your mom will be liable for capital gains. But as far as I'm aware, the requirement is 2 years not 3 for the capital gains benefit. 

[Elizabeth Buckley]

Have your mom sign a quit claim deed, sell it yourself, filing the exemption on your taxes, and give your mom her half. 

[David M.]

@Dario Miles

As @Elizabeth Buckley mentioned, the "practical" way to do it would be to just quit claim the deed.  Of course, somebody will say that you didn't have the full 100% ownership for 2 out of the past 5 years.  Also, the quit claiming of the 50% interest is a gift...  Also, how do you give your mom her half without incurring gift tax (or making the gift declaration to forgo the tax)...

Not trying to foment tax fraud here.  So, there isn't a great way for your mother not to pay her portion of the capital gains tax.

Just to clarify, it would be long term capital gains tax, so 5% or 15% (most likely) or 20% depending on your/her AGI.  She can potentially tax loss harvest if she other assets, e.g. stocks, to offset the gain, or some of it, thus eliminating the tax liability.

Consult a qualified professional or two...

[David M.]

@Dario Miles

Oh, and just clarify that both your names are on Title, right?  Its the Title that matters, not who is on the mortgage....

[Basit Siddiqi]

your mom would be ineligible to take the section 121 exclusion since she has not lived in the property for 2 out of the last 5 years.

[Simon Misiewicz]

Here's how it works in this situation:

1. Capital Gains Exclusion: As a single taxpayer, you may be eligible for the capital gains exclusion up to $250,000 for the gain related to your ownership and use of the property as your primary residence. To qualify for the exclusion, you must have owned and used the property as your primary residence for at least 2 out of the last 5 years before the sale.

2. Allocating Gains: Since you and your mom co-owned the property, you'll need to allocate the gains between the portion that qualifies for the exclusion (related to your ownership and use) and the portion that does not. If you have owned the property for more than 5 years and used it as your primary residence for at least 2 of those years, you might be able to exclude up to $250,000 of the gain from your taxable income.

3. Capital Gains Tax for Non-Excluded Portion: Any gain beyond the $250,000 exclusion, plus your mom's share of the gain, would be subject to capital gains tax based on the applicable tax rates for long-term capital gains.

4. 1031 Exchange Consideration: Since you've been using the property as your primary residence for more than 5 years, it's unlikely that you'll qualify for a 1031 exchange. To qualify for a 1031 exchange, the property must be held for investment or business purposes.