MsTabbyKats Posted October 23, 2014 Report Share Posted October 23, 2014 I'm gonna do some cut/pastes....so you can hear the problem in the clients own words. Then I'll write what I think is best to do....but I'd like some other ideas. Keep in mind...the son (30 year old doctor...not born here) is my client. I don't know the immigration status of anyone else in the family, and I have no idea of why what was done was done. Hi Bonnie, a quick question. Recently I sold a condo and this is my father's place. He borrowed money from my aunt to purchase the place. So now I have to money in my account, is it better for tax purpose to pay my father back so he can pay back my aunt or can I directly pay back my aunt? Hi Bonnie, So this is how it went with the condo. This condo belong to a company owned by my father and he brought the condo for me and it was listed under my cousin and my name (my cousin 5% and me 95%) but my cousin took out mortgage for the remaining balance after the down payment. Now the condo was recently sold and they have to write the check to me because it is my name on the deed. I have to write the check to pay back the money to my father. I didn't live in there and my father paid for it. I think we sold it for approximately 250k. Hi Bonnie Since I didn't pay anything for it and now I have to pay the money back to my dad, can I just put him to pay the taxes? We rented out for about 1 year plus and rent was paid to my dad. The purchasing price is about 190k give or take. Hi Bonnie I didn't pay any expenes. My father pay everything. It's only my name but otherwise nothing came into or left my account. Also my dad took out loans and that is also paid back. My dad will report the rent on his income tax. As you can see....lots of complications. The bottom line is that it's in my clients name....and if the sale is reported to the IRS....it will be in my clients name/SS# on a 1099-S. If it is....I think the easiest thing is to treat it as a sale of a second home and report the gain as long term. Then have the father reimburse him for whatever the additional tax is. My Plan B...was the amend 2013 to show the income on HIS tax return...show income for 2014...and then sell it on 2014. However, I don't know if the father reported it. My Plan C...is to wait and see if a 1099-S is issued. If not....tell him to have his father report it. Please note...the client is more concerned about paying back the aunt....he didn't know there were tax implications. Client is not "trying to get away" with anything. Just wants things to be legal....and doesn't want a $250K deposit in his account questioned. Thoughts? Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted October 23, 2014 Report Share Posted October 23, 2014 Sometimes creating a diagram of the ownership might help. Quote Link to comment Share on other sites More sharing options...
MsTabbyKats Posted October 23, 2014 Author Report Share Posted October 23, 2014 LOL....the legal ownership is clear. My client owns 95%....his cousin owns 5%. The dad had some motive for not having it in his own name....don't know/don't care. I just want things done so it doesn't come back to bite him some time in the future. That's why I think he should report the whole thing as a sale (as if it were 2nd home)....and deduct 'the tax due" from the proceeds. Quote Link to comment Share on other sites More sharing options...
easytax Posted October 23, 2014 Report Share Posted October 23, 2014 My initial thoughts (much more detail needed --- but what the heck). Can NOT be a second home --- he stated it was rented out for a year plus. Could be an investment for son's tax return -- do purchase and sale that way. From what you say - long term as over a year from purchase to sale. Working up the basis will be interesting -- from your comments -- son will still have a GAIN. Plan B -- son legally has no income (your explaination) for 2013 -- so legally -- no can do. Plan C -- regardless of 1099S issuance -- this is a "SNAKE IN THE GRASS" waiting to "bite" son -- if not done legally and properly --- it either is the son's to report -- or it is the fathers --- they do not get to choose --- however the transaction was is how it is --- cut-dried- you just get the pleasure of "digging them out" and keeping them "tax legal". Rental income and expenses are all to father and his taxes --- son only was investor -- had no dealings with rental, etc. (ownership only). Money from aunt was "borrowed" by dad - so son not involved Cousin, (mortgage in cousins name -- not clear here) --- so cousin has mortgage filing, interest, costs, etc..) Since, I am nosy, please keep us informed. Thanks Quote Link to comment Share on other sites More sharing options...
MsTabbyKats Posted October 23, 2014 Author Report Share Posted October 23, 2014 Transaction to sell was completely in son's name...son got (or is getting) all the proceeds. If it is reported on 1099-S it will be to the son. When I said "second home"....I really meant reporting it with the same consequences as a 2nd home....not exempt for gain. If father reported the income....I have no idea what he did....and I actually tend to doubt father reported the income. It's my opinion that the father put the condo in son's name to "avoid something". As far as son legally having "no income"....can father legally rent out something he doesn't own??? Without depreciating...most likely there would have been taxable income. As far as son/aunt....client just wanted to know if he should pay the aunt back directly...or give money to father to pay back his sister. That was his initial and only concern. This is a family issue...not a tax issue. So...it looks like my Plan A. Have son report sale...but have son keep the portion that he will have to pay for tax. Then, give father what's left after tax...and father can pay back his sister. This is what happens when people try to do financial favors for relatives. Just trying to keep son's record clean. Quote Link to comment Share on other sites More sharing options...
PapaJoe Posted October 23, 2014 Report Share Posted October 23, 2014 House belongs (or belonged) to father. Son - your client - was the nominee title holder. If 1099-S is issued to son, he should report the sale as nominee to his father, so same dollars in and out on son's return. All reporting of rental income and expenses, sale of house, etc. should be on father's return. If the father is not your client, you do not need to be concerned with whether father reported all this correctly or not. 2 Quote Link to comment Share on other sites More sharing options...
MsTabbyKats Posted October 23, 2014 Author Report Share Posted October 23, 2014 Thanks! Stupid question....but how does he report sale as nominee to father? On Schedule D...with father's SS#? Quote Link to comment Share on other sites More sharing options...
PapaJoe Posted October 23, 2014 Report Share Posted October 23, 2014 Not absolutely certain on this, but on son's return Schedule D show cost equal selling price to show zero profit. Son gives 1099-S to father showing same selling price. 1 Quote Link to comment Share on other sites More sharing options...
MsTabbyKats Posted October 23, 2014 Author Report Share Posted October 23, 2014 Thanks! Quote Link to comment Share on other sites More sharing options...
SaraEA Posted October 24, 2014 Report Share Posted October 24, 2014 Remember " substance over form." If this went to Tax Court, the verdict would surely be that son never really owned the place and none of the gain is his. If you can't do a nominee on Sch D, do what PapaJoe says and have the son issue the 1099S to dad. Son may have to file a gift tax return if he pays his aunt directly, but he probably won't owe any tax. Oh, the tangled webs some folks weave because they think they're getting away with something! I just read a Tax Court decision in the NATP monthly about two sets of parents who traded houses they didn't live in and then each sold their "new" home to the other parents' children. Made both sets of children eligible for the First Time Homebuyer's Credit (which didn't apply if you bought from a relative). The Tax Court said "substance over form" and voided the whole deal and both credits. 2 Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted October 24, 2014 Report Share Posted October 24, 2014 I agree with Papa Joe and Sara, this son never had any incidents of ownership. He should report it as a zero profit/loss sale, and give the money to Dad, leave Aunt out of his side, that's between Dad and her. Quote Link to comment Share on other sites More sharing options...
MsTabbyKats Posted October 24, 2014 Author Report Share Posted October 24, 2014 I agree with Papa Joe and Sara, this son never had any incidents of ownership. He should report it as a zero profit/loss sale, and give the money to Dad, leave Aunt out of his side, that's between Dad and her. Basically...this is what I told my client. I bet Dad's fuming.......I can hear it now... "What....that lady don't know anything. My EITC...my EITC!" 1 Quote Link to comment Share on other sites More sharing options...
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