Title transfer to child and capital gains tax question

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Title transfer to child and capital gains tax question

Account Closed
Tempe, AZ · Member since 2016 · 30 posts · 7 votes

I purchased a condo 2 years ago for 50K. My daugter has been living there ever since (so 2 year residency requirement has been met)

Now the property is worth about 70K. I would like to transfer the title to my daughter so that she can sell it and keep the money. What would be her cost basis? Would she be able to use the 2 year primary residence rule?

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  • Natalie Schanne
    Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Inga C. - I'm not a CPA but this is my understanding: - If you own the house on the deed and you didn't establish primary residency for 2 years for yourself personally, you cannot sell and claim any 250k IRS capital gains tax deductions on your tax return. If you wanted her to get the primary residency, she should have been on the deed/title 2 years ago. - If you choose to sell the property, you can gift your daughter the proceeds. You don't need to transfer the title except to the new buyer. You will pay tax on your tax return. - Your condo basis for capital gains is sale price - closing costs (6-10%) - purchase price + any capital improvements (new appliances) + depreciation recapture (if you depreciated it any, else ignore). So $70 - $7k - 50k + home imps = $13k gain on sale or so taxable at capital gains according to your regular income tax bracket (15-25%). Then gift her the remaining money tax free.
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  • Edmund Ricker
    Gorham, ME · Member since 2016 · 224 posts · 116 votes
    9y

    @Account Closed

    You need to consult an accountant who can examine your complete picture and advise you accordingly.  Explain your goal to a professional and they can help you to craft a plan to transfer the asset with the least tax impact or explain the consequences of transferring it all at once.

    You will run up against gift tax if you transfer the property outright because the FMV of the property is well above the annual gift exemption.

    If you sell the property and pay long term capital gains and then gift the proceeds to your daughter you still face gift tax.

    I hope this helps.

    Ed

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  • Lance LvovskyPro Member
    Accountant · Fort Lauderdale, FL · Member since 2013 · 1k+ posts · 753 votes
    9y
    Consult with a CPA. With that being said, if you transfer title to your daughter, that is a gift. You will have to file a gift tax return, although likely no gift tax will be due (I assume you haven't used your lifetime gift tax exclusion). Your daughter's basis is "carryover basis" in the case of a gift I.e same basis as yours
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  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    You're only looking at a gain of 20k

    Were there any other costs associated with the condo? 

    Purchase costs? 

    Renovations? 

    At this point her having lived there previously for 2 years doesn't benefit you with regard to the 121 primary residence exemption- she would need to live there 2 more years after it transferred to her name. 

    Also, have you been renting it to her? and or reporting this condo on your schedule E at all?

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  • Dave Toelkes
    Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    9y

    @Account Closed

    I am assuming that you have been treating this property as a second home and allowed your daughter to live there rent free.  It is true that your daughter has met the two year residency requirement but she has not met the two year ownership requirement, yet.

    Your daughter's ownership period begins on the day after you transfer title to her.  then, if your daughter maintains ownership for the next two years, profit on the sale (up to $250K) should be excluded from capital gains taxation (provided Trump's tax reform does not eliminate the capital gains exclusion on the sale of a primary residence).

    Because your gift of the property to your daughter exceeds the annual gift tax exemption, you will have to file a Gift Tax return along with your annual 1040.  This will most likely just be an information return with no tax due.  Your daughter's basis in the property will be the same as your tax basis, but this should not impact the capital gains exclusion if your daughter sells the property after the two years of ownership AND two years of occupancy requirements have been met.

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