How do you report the sale of a rental property if the mother owned it but added her three kids to the deed? All four people received a 1099S?

[BobKamman]

Only one of them had been reporting the rental income and expenses?  When were the kids added as owners, ten years ago or ten days before the sale?

[chiodoinc]

Yes only the mother was reporting the income.  She had the property for 30 years and added the kids on 20 year ago.

[BobKamman]

I would report the entire sale on the mother's return and suggest to the kids that they file nominee 1099-S forms directing the proceeds back to her.  Substance over form.  

[BobKamman]

I probably should have asked, what did they do with the four checks?  But if the kids kept it, they probably understood that they were holding it for Mom but wanted her to qualify for welfare so the taxpayers could support her and they wouldn't have to.  

[sjrcpa]

Did Mom file a gift tax return 20 years ago?

[chiodoinc]

How do you file a 1099 Nominee?  I believe the kids were added in the event the mother passed.  The checks were kept by the kids and one went to the mother. So all four individuals now have 1099S forms and the rental is on the mother's return.

[chiodoinc]

I am sure she did not. I would guess her previous accountant or lawyer never suggested that.

[BobKamman]

You can find the 1099-S form and instructions online.  It's about as easy as it would have been for them to deed it back to Mom before the sale.  

[sjrcpa]

 if we're saying it was Mom's house and kids' names were on it for convenience, then Mom has made a gift now to the kids who kept the money.

[chiodoinc]

It was initially the mother's rental property.  Then 20 years ago she added her kids to the deed. Now the rental is sold and each of them received a 1099S.  I was just not sure it gets reported on each of the tax returns. If they have been on the deed for 20 years is it still a gift since they are part owners of the rental?

[sjrcpa]

It was either a gift of part of the rental property 20 years ago or a gift of cash now.

Depends on what position you are taking regarding ownership and reporting for the sale of the property.

[chiodoinc]

If it was a gift twenty years ago, do I just report the proceeds from the sale on a 4797?  This is the first time I am dealing with this situation so I just want to make sure I am doing things correctly.  Sorry for all the questions. I appreciate the input.

[BobKamman]

Has it been rented for 20 years, or did Mom live there until recently when she moved to assisted living?  

I'm not sure there is an easy way to untangle this web.  

[qbteachmt]

"If it was a gift twenty years ago"

So the other 3 had no activity nor tax benefit from this rental? "In name only."

"It was either a gift of part of the rental property 20 years ago or a gift of cash now."

How much are the amounts on/at the time of all of these events? Can you estimate, for instance, with 4 people and property held from that long ago and even gifted that long ago, do you have events that fall under the gift limits? Are you looking at $65k original cost or $650k, for example? What is the basis when gifted (split 4 ways), what is the current sale price (FMV), total depreciated, etc? What is the amount of each check from the sale now (net)? Perhaps they can use the nominee process, then she has this disbursement as gifts now. Was that other transfer deed recorded and everyone was on the title, or did she just direct them to cut those checks?

[chiodoinc]

The mother never lived in it.  It was strictly a rental.

[taxes96786 · Accepted solution]

IMO... if kids were placed on the deed 20 years ago then they are each 1/4 owner. Each has a basis of 1/4 FMV at time of transfer. 1099s needs to be reported and sales amount allocated by percentage to each.

That only mom reported Sch E over the years is not relevent.

[BobKamman]

What may be relevant is that the kids have been in a 30% tax bracket for decades, Mom has been in a 0% bracket, and they have successfully assigned their rental income to her.  I would say they get away Scot free, but there is some question lately about how much the guy with the Scottish mother will get away with.  

[qbteachmt]

"Each has a basis of 1/4 FMV at time of transfer."

Not FMV; basis at the point of transfer, right?

That's why this is useless without understanding the values.

[abctax55]

"....Each has a basis of 1/4 FMV at time of transfer." 

Laura - would you like to edit your answer as you were given the 'solve'?  Just for the future searchers that you are trying to educate?

[chiodoinc]

Thank you to everyone who offered a suggestion.  I understand this is an unusual situation and was probably not handled properly from the time the mother added the kids to the deed on the rental property. I  just wanted to see how to report the sale of the property so everyone pays their share of gains.  Thank you for the suggestions.

[BobKamman]

@qbteachmt Basis at the point of transfer, or basis at that point less all the depreciation Mom has taken since then, even though she didn't own the property?

@chiodoinc Unfortunately, this is not an unusual situation.  The wealthy try to avoid probate with trusts.  The poor try to avoid it by quickly recording quitclaim deeds.  

[qbteachmt]

"even though she didn't own the property?"

Up to the date of transfer, she owned the property. At least, that's what was stated.

We're not going to resolve this. We still are not being given enough info to really help at all. All we've done is point out all the issues that have gone wrong.

[BobKamman]

@qbteachmt An earlier post stated "She had the property for 30 years and added the kids on 20 year ago.."    So yes, up to the date of transfer she owned the property, but the date of transfer was long ago.  Nevertheless, she treated the property as her own, reporting all of the rent and expenses. 

I think we have all the information to resolve this -- the sale goes on Mom's return, and the kids can deal with the 1099-S as best they can.  The sins of the mother are being visited on them.  But if you hang around here long enough, you can always get the answer you want, even when it's wrong.