Sale of Home Exclusion

[ed_accountant]

A Single Taxpayer is thinking of selling their home that would have gain greater than 500K. Taxpayer would qualify for the 250k exclusion and have taxable gain on the remaining.

Taxpayer has asked me via email, if her adult 18 year old son who has lived in the house for the last 2 years could qualify for the another 250k exclusion if she gifted half the house and transferred title of the home to the son.

Any thoughts on how to answer this?

My feeling is to refer her to a tax attorney since her question is related to transfering deeds.

Thanks

[Guest Taxed]

I seriously doubt they will be able to pull this one off. I am assuming this is a single family residence? One house #.

[imjulier]

For the exclusion, you have to have owned it and lived in it for 2 years. A gift today does not mean the son owned it 2 years ago. My short, simple answer.

[Jack from Ohio]

My very short answer - No.

Tell her to be happy with only paying 15% and quit trying to "end around" tax laws.

Refer her to someone else.

[jainen]

>>refer her to a tax attorney since her question is related to transfering deeds<<

Good advice if the issue is estate planning. But for selling a house, in my experience most real estate attorneys don't have a reliable understanding of tax implications.

One alternative is to gift half the title now, and rent the property out for no more than three years. Under Section 121, ownership and occupancy do not have to be the same two years. There's a good chance sales prices will be higher by then anyway.

[JohnH]

And if prices aren't higher by then, just back up and sell it now.,,

[kcjenkins]

Jainen is right, but most likey she wants to close the deal and not bother with the property for that long. In which case, I have two points.

1. Paying Cap gain rate on half the gain is still a great deal.

2. I'd be double-checking her basis, to be certain she actually has that big a gain. For example, if her spouse died a few years ago, she got a step up on his half of the basis at that point, an often over-looked item since there is no paperwork filed on that at the time. Even if he died ten years ago, the FMV might have been significantly higher at that time, giving her a significant step up.