How to record Gift of Equity on 1040 and 709

[rafregault]

I am in the process of preparing on my aunt and uncles 1040. They sold their primary house to their daughter in 2023. According to the closing document they sold it for $450K (FMV), the settlement statement also has a line called Gift of Equity for $168K which assisted their daughter to meet the 80% loan to FMV and my aunt and uncle were paid out $168K less at closing. Their basis in their house is purchase price plus improvements totaling $300K. Want to make sure I show this correctly on their return (also related party transaction loss isn't allowed). They said they never received a 1099S and they called the closing attorney and they said they didn't file one. So not sure if I need to report it as it is under their exemption but I need to file the 709 so I figured best show it on their 1040. I could be wrong and not have to show on their return. If I do show it not sure if the sale is really $450K if they gifted $168k. Do I decrease the sale price or increase the cost basis by $168K or is it considered selling costs?   

Second question is on the 709  -  the gift is $168K so I would show this amount on Schedule A part 1 Item F (value at date of gift) and this will split 50/50 for item G.  But what gets me hung up on is item D the donor's adjusted basis of gift.  Is this the actual basis in the house of $300K or is the $168K or is it 37% of their basis (gift/fmv) .  Any assistance would be greatly appreciated.  

[qbteachmt]

You're overcomplicating this. Think of the gift as money. They gave her the money, in essence.

Yes, the sale is $450k.

FMV of the real estate minus the debt against it is her equity. She didn't fund that difference; someone gave her a gift "of equity."

Start here:

https://www.rocketmortgage.com/learn/gift-of-equity

https://www.irs.gov/instructions/i709

And it helps to state which Program you are using: ProSeries, ProConnect or Lacerte?

For example, you can google:

proseries 709

[rafregault]

Thank you qbteachmt.   I will check out the two links.   I'll remember to add my program of ProConnect next time I post.   

[TaxGuyBill]

---

@rafregault wrote:

According to the closing document they sold it for $450K (FMV),

the settlement statement also has a line called Gift of Equity for $168K ...  and my aunt and uncle were paid out $168K less at closing.

Their basis in their house is purchase price plus improvements totaling $300K.

---

The sale price on the 8949/Schedule D is $300K.

The sale price is the actual amount received ($272K), but not less than their Basis ($300K).

See §1.1001-1(e), and the Example 2 in that section.

https://www.law.cornell.edu/cfr/text/26/1.1001-1#e

[rafregault]

TaxGuyBill,  Thank you for the clarification. Greatly appreciated.