How do I report the gift of equity in the sale of residence. I understand I will have to file a gift tax return, but I am not sure how to report it on 1040.

[caroljo]

My client sold their house to their granddaughter for 325,000 and gifted her 81,250 as gift of equity.  Do I use that amount as a expense of sale or not?

[rbynaker · Accepted solution]

Here's the other thread:

https://accountants-community.intuit.com/questions/1527620

Which leads you to Reg 1.1015-4:

https://www.law.cornell.edu/cfr/text/26/1.1015-4

Rick

[caroljo]

Thank you all very much for your time.

[abctax55]

"or not?"

Not.   Gifting to a relative is not deductible (unless that relative is a not-for-profit).

[Marc-TaxMan]

IRS considers it 2 transactions: part sale (with proportional basis); part gift with carryover basis.

Assuming full value is $320,000 IRS considers approx 75% to be a sale (of 75% of their basis) and 25% to be a gift.

The 75% purchased gets new basis to purchaser; the 25% gift gets carryover basis to donee.

[abctax55]

Good answer - I read the question *they sold the house, gave her cash*.
I really shouldn't answer questions until all the coffee is on board

[caroljo]

They sold the house for 325,000, the settlement sheet shows 81,250 "gift of Equity from sellers", with  a balance of 243,000 loan amount from buyer.  So how do I report this?  I probably shouldn't ask questions until all the coffee is on board also.  

[rbynaker]

I think we had a similar discussion a couple years ago and @TaxMonkey had a great cite for it.  I remember the regs being counter-intuitive to me but I don't remember what they said. 🙂

[TaxMonkey]

Marc. Taxman if you have a chance please review the thread linked below, and 1.1015-4.  I do not believe that your answer is consistent with the Treas Reg.