Tenants in Common

[Paul-G-328]

When Tenants in Common sell a house can they only include the expenses of the sale for their basis?

I have 2 sisters, both clients, who were Tenants in Common for their Mothers house while she was living there. Last year the Mother moved into nursing care and the sisters sold the house and received a 1099-S for 1/2 the proceeds each. Since they did not put any $ into the house then they would have to pay Fed and state tax on the proceeds less only the expenses of the sale?

[jeffmcpa2010]

Their Basis would be Mother's basis, if Mother deeded the house to them. Which may be what she originally paid for the house, (Plus Improvements) or if she was married, possibly received a step up Basis if spouse passed away while they owned the house jointly.

Unfortunately they don't qualify for the personal residence exclusion.

[qbteachmt]

There needs to be more details provided.

Were they TIC with Mom also on the deed? Or, did they own it together and only the two of them? And how did they get it: they bought it for Mom, or one of them used to live there, or as noted, perhaps it was Mom & Dad's until Dad died, then Mom put only them on the deed (gifted the house) or Added them to her deed?

Every version makes something different happen.

[BobKamman]

It's fairly obvious the mother's name was not on the deed, if two people received half the proceeds each.  The issue is whether the mother was still beneficial owner of the house, even though she did not have legal title.  The sisters might want to make the case that they held it only as constructive trustees, and the sale should be reported by the mother, who may qualify for the primary-residence exclusion.  Having gone to great effort to avoid probate, it now depends on how much effort they want to make to avoid the tax collector.  

[TaxGuyBill]

Why were they owners of the mother's house?  Did the mother own the home ,then transfer title to them, but the mother kept full control and responsibility of the house?  If so, that may be an implied Life Estate, which would require different treatment.

[qbteachmt]

"It's fairly obvious the mother's name was not on the deed, if two people received half the proceeds each"

At the time of sale, sure. People try this tactic to avoid the lookback for Medicaid. You need the other info to establish how basis comes into play.

Everyone overlooks the tax ramifications when they want to maximize the legal ramifications. Or, they overlook the legal ramifications when they want to maximize the tax ramifications.

And typically, they lose on both issues.

[Paul-G-328]

their parents owned the house for 40 years, the father died about 10 years ago and the Mother set up the 2 daughters in Tenancy while she continued to live there. But I just talked to them and it turns out the Mother received $44,000 as a percentage of something, Im not sure what. I'll have to look into this further but the sale of the house was $250K and they each received 1099s for $125K. And at the same time the Mother received $44K. Maybe some kind of contingency, but I think I can add this to the basis.

[BobKamman]

Looks like the mother had a life estate.  Not sure how that's handled on 1099's -- total sale amount goes to the remainder interests, the life tenant receives nothing?  But the basis would take into account the FMV at father's death.  

[Paul-G-328]

In any case how do I report this? The Sale of a Home worksheet only talks about the main home. So if I just answer no to the residency questions. I can just go on to the 4797?

[qbteachmt]

Sale price $250k.

Two TIC each receive $125k.

Mom received $44k.

It's too much money.

And if the two TIC didn't live there, they don't have a Main Residence gain.

And if Mom didn't own the home or have a remainderman position of some sort, she didn't own the home that was her main home.

It seems everyone has some sort of income or gain to report.

Not everyone's good intention is done with proper guidance.

[sjrcpa]

No 4797 since it was not used in a trade or business.

It goes to Schedule D/8949.

Don't use the home sale worksheet. Use the 1099-B section; same as for a stock sale. Did I get that right @Just-Lisa-Now-  ?

[Just-Lisa-Now-]

Yes, Sch D, use the 1099B worksheet, just skip over the brokerage info at the top.

Homesale worksheet is only for sale of principal residence.

[Paul-G-328]

Yes, I just looked into it further and found out that it WAS a life estate. And the $44K the Mother was given was the life estate value. So what would be the treatment then?