Sale of Home

[GodFather]

Single, New Jersey resident client has a home in South Carolina.  She and her son are listed on the deed.  Her son has lived in the South Carolina home for the past ten years as his primary residence.  My client has paid most of the home's taxes and mortgage.  I do not prepare the son's tax return or know his financial information.  Can the son exclude the gain on the sale of the home on his return??

I did read through Publication 523, Selling your Home.  I didn't see an exclusion that would prevent him from claiming the exclusion, but I may have missed something.  

Appreciate any input from those who have experience with this scenario.  Thank you. 

[BobKamman]

He can claim the exclusion on his share of the gain, assuming he has been an owner for the required period and not just someone who recorded a quitclaim deed from Mom last month.  

[GodFather]

Thanks for replying, Bob.  "His share of the gain" I assume that means 50%, since they are co-owners...unless there is some other way to calculate his share?  Is it based on expenses they have shared?

[IRonMaN]

Unless there is some agreement stating that he only owns 37.372794453781% (or something like that), I would go with 50% due to joint ownership.

[GodFather]

Thanks, Iron!

[IRonMaN]

You betcha!

[GodFather]

I again appreciate all of the feedback and thoughts on this topic. 

Here's another question...the deed has both their names on it.  Both taxpayers are single.  Assuming a gain of $400,000 on the sale, the son can exclude up to $125,000 (1/2 of $250,000), with the remaining $75,000 being a capital gain on the sons return..  My client would have capital gains of $200,000 on the sale.  Is my interpretation correct here?

Or can he take the full $250,000, with my client picking up $150,000 of capital gains on her return?

[Norman2001]

If the gain is $400k, then he gets half = $200k

§ 1.121-2 Limitations.

(a) Dollar limitations—(1) In general. A taxpayer may exclude from gross income up to $250,000 of gain from the sale or exchange of the taxpayer's principal residence. A taxpayer is eligible for only one maximum exclusion per principal residence.

[GodFather]

Thanks for the reply, Norman.  The other owner, my client, would show a capital gain of $200k, correct?

[Norman2001]

Yes, Mom would report $200k gain.  

[GodFather]

Thanks for everyone's replies.  Much appreciated. 

[BobKamman]

As long as each unmarried co-owner satisfies the two-out-of-five-year ownership and use tests, each gets to exclude up to $250,000 of their share of the gain from the sale.  

I know there's an IRS ruling about that somewhere, but I found it here with a quick search.  

https://www.nolo.com/legal-encyclopedia/how-does-the-capital-gains-tax-exclusion-apply-three-co-owne...