Exclusion of Gain on Sale of Personal Home with "Strange" Ownership

[taxmanrick]

Thank you once again for this excellent forum!

Here's a situation I'm wrestling with concerning sale of a personal residence with unusual ownership. Any help that anyone can provide will be much appreciated!

Here are the facts:

1. Single family home occupied by Husband (H) and Wife (W) for forty years. They always file a joint tax return.
2. Deed for home shows ownership as W and her brother-in-law (B). H is not on the deed for irrelevant reasons. B was added to the deed twenty years ago solely to ensure that there were two names on the deed. B has no involvement in the home and does not live there.
3. Home is sold. Per Pub 523, "amount realized" is $1,000,000. "Adjusted basis" is $100,000 yielding a $900,000 gain.

Questions:

1. What is the "amount realized" and "adjusted basis" on H and W joint tax return?
2. What is H and W's excluded gain on their joint 1040?

Thank you for your help!

--Rick

[Lee B]

When you say brother in law, whose brother are you referring to?

[taxmanrick]

The wife's brother-in-law.

[Lee B]

14 hours ago, taxmanrick said:

The wife's brother-in-law.

?

[taxmanrick]

Sorry, CBSLEE. I misunderstood your question. Let me provide some updated info:

Here are the UPDATED FACTS:

1. Single family home occupied by Husband (H) and Wife (W) for forty years. They always file a joint tax return.
2. Deed for home shows ownership as W and a COMPLETELY UNRELATED THIRD PART (B). H is not on the deed for irrelevant reasons. B was added to the deed twenty years ago solely to ensure that there were two names on the deed. B has no involvement in the home and does not live there.
3. B DIED LAST MONTH AND LEFT A WIFE, NO KIDS.
4. Home is NOT YET SOLD (ONLY IN THE PLANNING-FOR-SALE STAGE). Per Pub 523, "amount realized" WOULD BE $1,000,000. "Adjusted basis" WOULD BE $100,000 yielding a $900,000 gain.
5. Per Pub 523--Determine whether you meet the ownership requirement: If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement. For a married couple filing jointly, only one spouse has to meet the ownership requirement.

I still have these questions, if you'd like to take a shot at them (ASSUMING A QUIT CLAIM DEED IS ISSUED BY B's ESTATE AND ONLY W REMAINS ON THE DEED):

1. What is the "amount realized" and "adjusted basis" on H and W joint tax return?
2. What is H and W's excluded gain on their joint 1040?

SAME QUESTIONS, THIS TIME ASSUMING EITHER B's ESTATE OR B's WIFE REPLACES B ON THE DEED:

1. What is the "amount realized" and "adjusted basis" on H and W joint tax return?
2. What is H and W's excluded gain on their joint 1040?

It probably would be best for W to see an attorney and/or CPA to straighten out this mess!

Thank you for your help!

--Rick

[DANRVAN]

6 hours ago, taxmanrick said:

would be best for W to see an attorney and/or CPA

Attorney for sure, given the dollar amount involved she needs legal advice which we as CPA's cannot give out.

 

6 hours ago, taxmanrick said:

solely to ensure that there were two names on the deed.

Although a moot point now, why was that necessary?   Was an attorney involved?

The estate may or may not have any ownership depending on whether B held Joint Tenancy or Tenancy in Common, that is where legal advice is needed.

[Gail in Virginia]

It sounds like H and W meet the requirements for the full exclusion - they both lived there two of the last five years, and W owned tow of the last five years. 

However, I agree that an attorney needs to be involved to determine portion owned by estate of B, and how the property basis and proceeds have to be treated.  Was this considered a gift to B at the time he was put on the deed?  Is the estate gifting the property back to W ?  Too many questions unanswered.

[taxmanrick]

Thanks, DANRVAN and Gail!

My advice to her is to see an attorney first to get the deed and ownership straightened out, and with the attorney, figure out a sale plan. I'll take over her taxes after all is straightened out.

Thank you all again!

--Rick