Sale of (not our) property tax question

[rathail]

I’m not sure how to deal with this come tax time. (2020)

DW was put on the title of a recreational property for inheritance thinking by the in laws. I don’t get the benefit.
We put no money into the purchase. But now they have sold the prop. for a large profit.
They would like to gift some money too DW.

Do I have to identify that we sold property on our 2020 federal taxes since she was on the title?
How, if we do, do I somehow show that the in laws hopefully payed the taxes.

Could the in laws gifting to DW in any way be viewed as a taxable profit for us by the Fed?

Since I don’t use a CPA where could I ask this question and get a reliable answer?

Not sure if below has any bearing.
We are in the community state of Washington with no income tax.

 

[Sunset]

My uneducated opinion:

I would not include this in 2020 taxes as she really had zero investment, and there probably was not a declaration that she owned more than 1/1000th of 1 percent, and she had no control over the property.

If she didn't sign the title papers, that would add weight and make it a slam dunk in my view.

If the inlaws want to gift some money to you, or your wife, it's not taxable to you or her. It might use up a part of their gift taxes allowance, but still not taxable.

If it's less than $15,000 per person each year the gift is not even subtracted from in-laws gift tax allowance.

 

[pb4uski]

+1 I would ignore it presuming that she never contributed to the buying of the property, its annual expenses (like property taxes) and didn't directly benefit from the sale (the sale proceeds were paid to your in-laws).

If your inlaws want to give your DW a gift, then that is fine and I'd treat it that way.

 

[CardsFan]

If your wife was on the title, and had to sign the papers to sell, then she had an ownership interest. If she was just a TOD, or Beneficiary, there was no ownership.

If she had an ownership interest, then, legally/contractually, she should get that percentage from the sale, declare it, and pay CG tax accordingly. If there was a lawyer or a title company involved, this would have been (should have been?) automatic.

So, if she did not need to sign anything for the sale, I would not report it. If she did, you need to dig deeper to find out what % ownership she had.

AFAIK, the parents cannot "just pay all the taxes".

FWIW, I don't think this would hit the radar screen for the IRS. But, if you get audited for any other reason, ......?

 

[RetireBy90]

For the gifting question, the irs says limit for gifts without any inheritance complications is $15,000. I did this for my mom before she passed. Depending on how much they want to gift, each person can give the $15,000 each year, or $30,000 if from father-in-law and another from mother-in-law. If they want to do more, they could also gift same to you for total of $60,000 each year.

A https://www.irs.gov/newsroom/in-201...due-to-inflation-adjustments-others-unchanged

 

[cathy63]

I usally agree with pb4uski, but in this case, I think you may need to report it. If she gets a 1099-S and you don't report it, you'll probably get a letter from the IRS telling you all about the extra tax and penalties they want from you.

Technically, this property was a gift in the year that her parents added her to the title. If the value of the portion of the property they gave her was greater than the gift tax exclusion amount in that year, they should have filed a gift-tax return. Her cost basis in the gifted property is whatever their cost basis was when they acquired it. There's no step-up in basis for a gift.

Presumably she had to sign a transfer deed when the property was sold. She is entitled to her portion of the proceeds of the sale. That's not a gift. The property was hers from the day they added her to the deed and if it sold for more than its basis, she has a reportable capital gain that goes on your return. If the in-laws want to pay the taxes, then they should give you the money for her portion of the cap gains tax.

If they want to give her more than her proper portion of the proceeds, that's just an ordinary gift. She doesn't have to pay tax on it, but again if it's more than $30K ($15K from each parent), then the parents are responsible for filing a gift-tax return which will count against their lifetime exemption.

I don't think you living in a community property state has any relevance here. This is probably her separate property, so you could choose to file your 2020 taxes as MFS and the gain would go entirely on her return, but it's almost certainly better to file MFJ anyway.

 

[pb4uski]

If your wife was on the title, and had to sign the papers to sell, then she had an ownership interest. If she was just a TOD, or Beneficiary, there was no ownership.

If she had an ownership interest, then, legally/contractually, she should get that percentage from the sale, declare it, and pay CG tax accordingly. If there was a lawyer or a title company involved, this would have been (should have been?) automatic.

So, if she did not need to sign anything for the sale, I would not report it. If she did, you need to dig deeper to find out what % ownership she had.

AFAIK, the parents cannot "just pay all the taxes".

FWIW, I don't think this would hit the radar screen for the IRS. But, if you get audited for any other reason, ......?

It sounds like it was TOD since the OP mentioned "inheritance thinking". Unless she gets a 1099-S for a share of the sales proceeds I wouldn't fret about it. If she were going to get a 1099-S then the closing attorney would have needed to ask her for her TIN.

My guess is that no matter how it was titled that the parents will get a 1099-S for the entire proceeds from sale and report it on their tax return and that seems fine to me if she never had any skin in the game.

 

[CardsFan]

It sounds like it was TOD since the OP mentioned "inheritance thinking". Unless she gets a 1099-S for a share of the sales proceeds I wouldn't fret about it. If she were going to get a 1099-S then the closing attorney would have needed to ask her for her TIN.

My guess is that no matter how it was titled that the parents will get a 1099-S for the entire proceeds from sale and report it on their tax return and that seems fine to me if she never had any skin in the game.

I think you are correct, but it was not clear from the OP. I agree, if the parents get a 1099-s for the full amount, then OP and wife are free and clear, subject to the above comments on gifts and gift taxes.

 

[rathail]

Wow. Fast responses, thanks.

First the wife had to sign for the sale, I had to sign one page that I knew where the check was going.
Told it was a community state thing. There was no beneficiary indication on the title.
One check in full to the in laws as far as I know.
How do I find out if we will get a 1099-S form before January of next year?
I will try the folks who we notarized with and see who they direct us to.
Will it go to the addresses of the SS# of the parties on record. I assume it will.

 

[SecondCor521]

First the wife had to sign for the sale, I had to sign one page that I knew where the check was going.
Told it was a community state thing. There was no beneficiary indication on the title.
One check in full to the in laws as far as I know.
How do I find out if we will get a 1099-S form before January of next year?
I will try the folks who we notarized with and see who they direct us to.
Will it go to the addresses of the SS# of the parties on record. I assume it will.

The 1099-S will be issued by whomever was reported on the sale's HUD-1 settlement statement as the settlement agent. Your inlaws should have received a copy of the HUD-1 as part of the closing documents.

Once you find out who the settlement agent is, you can ask them. They may not be able to tell you who will be getting the 1099-S due to privacy concerns. But your wife certainly could call and ask if she is going to be receiving a 1099-S from them.

It'll presumably be mailed to the sellers at their address on the closing documents. (The SSA does not share addresses of people based on their SSNs.)

 

[cathy63]

First the wife had to sign for the sale, I had to sign one page that I knew where the check was going.
Told it was a community state thing. There was no beneficiary indication on the title.
One check in full to the in laws as far as I know.
How do I find out if we will get a 1099-S form before January of next year?
I will try the folks who we notarized with and see who they direct us to.
Will it go to the addresses of the SS# of the parties on record. I assume it will.

I wonder if your wife gifted her interest in the property back to her parents as part of the sale. If that's the case, then I think she wouldn't owe any cap gains and wouldn't get a 1099-S.

It might be worth having a chat with your in-laws and figuring out what they think happened in this entire process. If you explain that you're trying to figure out whether there's anything you'll need to report on your taxes, they might be able to explain why or why not.

 

[Doribe]

If your wife was on the title, and had to sign the papers to sell, then she had an ownership interest. If she was just a TOD, or Beneficiary, there was no ownership.

If she had an ownership interest, then, legally/contractually, she should get that percentage from the sale, declare it, and pay CG tax accordingly. If there was a lawyer or a title company involved, this would have been (should have been?) automatic.

So, if she did not need to sign anything for the sale, I would not report it. If she did, you need to dig deeper to find out what % ownership she had.

AFAIK, the parents cannot "just pay all the taxes".

FWIW, I don't think this would hit the radar screen for the IRS. But, if you get audited for any other reason, ......?

I agree with Cardsfan. Your DW will get a 1099-S when the tax stuff goes out early next year if she needs to consider it. If I recieved a 1099-S I would be afraid to ignore it. The in-laws would have needed your DW's SSI no. to give to the title company. I think she would have needed to sign a document.

I sold a family property with a straight cash transaction, no realtor or title company and I didn't receive a 1099-S. I split the money with the siblings and that was that.

 

[rathail]

Okay, Thanks for the guidance.

I was going to go on a in law rant but I will restrain myself some.
The amount they mentioned DW would get, might just covert taxes from my guesswork.
That is if we do get a 1099-S and it indicates 1/3 for our responsibility. No idea what the split could be though.
I will have to ask the mother in law when DW’s step father is not about.
Finding out if we will get a 1099-S form is the first priority before he might spend it.

This is kind of what I was expecting but the details were fuzzy.

 

[pb4uski]

Did your DW receive any money when the sale of the land closed? If not, then she probably won't receive a 1099-S. A 1099-S would be issued to each person who received part of the proceeds from the sale.

 

[CardsFan]

I was going to go on a in law rant but I will restrain myself some.
The amount they mentioned DW would get, might just covert taxes from my guesswork.
That is if we do get a 1099-S and it indicates 1/3 for our responsibility. No idea what the split could be though.
I will have to ask the mother in law when DW’s step father is not about.
Finding out if we will get a 1099-S form is the first priority before he might spend it.

This is kind of what I was expecting but the details were fuzzy.

WADR, I think you have other issues that need to be considered. Your DW should not be left in the dark on this. If she signed papers, she should have copies. If there was a title company or lawyer involved there should be records.
If she did NOT receive any money, but then gets a 1099-S, there is something going on. The 1099-S is specifically for someone who recieved funds from the transaction.

Just my 2 cents. I am not a lawyer and don't play one on TV.

 

[rathail]

Okay, getting a little worried now

I found the copy of DW’s papers.
There was a form for a 1099-S exemption for not reporting a 1099-S to the IRS, one each for the in laws but not one for DW.
The check was cut only to them nothing to DW.
I think we will be calling the Title and Escrow on Monday.

 

[SecondCor521]

I found the copy of DW’s papers.
There was a form for a 1099-S exemption for not reporting a 1099-S, one each for the in laws but not one for DW.
The check was cut only to them nothing to DW.
I think we will be calling the Title and Escrow on Monday.

Do any of the documents you have copies of indicate who the sellers are?

Normally a real estate contract will identify the buyers and sellers by name and will be required to be executed by all buyers and all sellers. In fact, almost all of the closing documents list the buyers and sellers by name.

If she's not listed as a seller (and this would be on multiple closing documents) then I would lean towards her just being on the title as a TOD beneficiary or something like that, which would imply no ownership and thus no capital gains tax liability for the net profit from the sale.

 

[rathail]

More info

DW was listed as a seller on multiple other forms but not the WA state Release of Interest