What are the tax implications of selling a condo that my retired parents and I own?

What are the tax implications of selling a condo that my retired parents and I own?

by Rosemary Lamaestra, CPA, CFE | Nov 10, 2017

I am a one-third owner and primary resident of a condominium purchased in 2014 for $265,000. The three of us are looking to sell for roughly $300,000 (for simple mathematics purposes). We would theoretically get $100,000 each for the sale. The other two owners are my retired parents on fixed income Social Security payments. I know that I am eligible for a capital gains exemption of $250,000, so I will not pay anything. But what about my parents? Will they be taxed on the full $100,000 or just on the gain of $35,000/2 = $17,500 each? Is there any way for them to avoid getting dinged to that extent? For example, could they stipulate that of the sale proceeds, I get $250,000, and they split the remaining $50,000 (they want to give me money anyway for a down payment on a house)? Or are they required to take the full $100,000 each? 

Your question does not have a simple answer. There are several factors to consider:

  • Are you all equal owners? Was the condo purchased with equal funds from each of you?
  • Who are listed as owners on the deed?
  • Who pays the taxes on the property?
Capital gain is the amount you receive over and above the amount invested (the cost of the property and improvements over time). Not all improvements qualify, so be sure to check with a tax professional. In your example, using the cost of $265,000 and the sale price of $300,000, the gain would be $35,000. This amount would be split based on the answers to the bulleted questions above. If your parents are “gifting” money to you, then there are other regulations to consider as well.

I recommend contacting a CPA that would be able to explain the nuances of this type of transaction in more detail.
For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Rosemary Lamaestra, CPA, CFE, is a manager with RLB Accountants in Allentown.
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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