My question is: US-specific
QUESTION: Built the daughter a house, cost us 170K. They get loan for 160K,
at closing we agree to say house cost 200K so there is no down payment. 40K
is "gift of equity" and it shows that on 1099S but also says sale price is
200K. We paid closing costs, walked away with 154k.
Had the lot/house for less than 6mo. Built in spare time with some help, we
are teachers (read POOR) so hope not to have to pay capital gains on this
transaction?
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david ingram replies:
As I see it, there was a constructive trust involved and you built a house
for $170,000 and sold it to your daughter and her husband for $156,000.
Your gift was $16,000 which is not subject to gift tax. The rest of the
paperwork was window dressing. I am assuming that daughter and husband
assisted with some of the building and painting and landscaping and fetch
and carry stuff.
Not Taxable for gift tax or income tax. The sweat equity on all your parts
stayed in the family. The necessity to build it in your name to start with
was because your daughter and her husband did not qualify for the mortgage.
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