After some research and a very unsuccessful call to the IRS, I am still not sure what to do. A client came to me and told me her brother paid off her and her husband’s mortgage. In order for him to not pay gift tax, they gave him 50% of ownership of their house. Now they have technically sold 50% of their house. I cannot find whether they are eligible to exclude their gain. I am not sure if there are rules against the exclusion because they sold only 50% of their home. Also, I think they cannot exclude their gain because they sold their home to the brother, a related party.
Does anyone have experience with this? The IRS transferred me 5 times and finally said they would get back to me within 15 days.
Thanks,
Susan C. Pulaski, CPA
PS if they came to me first I would have just had the brother pay the gift tax and they could pay him back. So much for good deeds.