Level 2

Section 121 Exclusion

Forum|Forum|2 years ago
September 10, 2024
10 replies
132 views

Facts: Son, mother and father are all owners in a home. The son lives in the home, but the parents do not. The son wants to sell the home.

Question: If the parent's gift their 2/3 ownership to the son and then the son sells the home - can the son use the entire Sec 121 exclusion based on his filing status??

Thank you in advance!

A Borges

qbteachmt

Level 15

There's an ownership component and a usage component. Does he intend to live there long enough to meet the ownership requirement?

Don't yell at us; we're volunteers

T

taxmo

Intuit Community Champion

Only if he waits two years after the date they gift their 2/3 portion to him.

The way it works is when there are joint owners, each owner can qualify to exclude $250,000 from their portion of the gains on sale if they meet all the qualifications. So as it is, he would qualify to deduct $250k from his gains, but the parents would not.

They can't just gift their interest in the property to him and have him qualify right away to deduct the gains from the whole property, because that portion of the property wouldn't yet meet the 2 year requirement.

T

TaxGuyBill

@taxmo wrote:

Only if he waits two years after the date they gift their 2/3 portion to him.

They can't just gift their interest in the property to him and have him qualify right away to deduct the gains from the whole property, because that portion of the property wouldn't yet meet the 2 year requirement.

Do you have a citation for that?

I would need to look things up again, but in many cases an owner is still entitled to use 100% of the property even when it is owned by more than one person.

While I agree that your comment seems somewhat 'fair', I don't think it is necessarily correct (although it is possible how the title was held and state law could affect it).

T

taxmo

Intuit Community Champion

§ 1.121-2(a)(2) is primarily what I was basing that on, which allows each joint owner to exclude gain "that is attributable to each taxpayer's interest in the property".

Depending on the state, they may have a tenancy in common and a joint tenancy. Either way, each person has an "undivided interest" in the property, which means they all have a right to use any part of the property. But they do still only own a partial interest in the property (a partial ownership percentage).

So my thought process is that as co-owners who are entitled to 100% use of the property, they pass the would pass the "use test" for the whole property. But I don't think they would pass the "ownership test" for 2 years for 100% of the property, only their partial interest portion.

I couldn't find specific tax court cases or other references to this specific situation, so it's possible there is a different way this is supposed to be handled.

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