What are the tax implications of doing a quit deed on my daughter’s home and then selling it?

by Paula A. Rummell, CPA | Aug 01, 2018
askacpaicon

My daughter and I are going to do a quit deed on her home. She is moving out of state, and I am going to pay off her $80,000 mortgage and then put about $15,000 into the house to get it ready to sell. I expect to clear about $10,000, which I will mail to her. I only am getting my expenses recouped. I will list the house within one month of paying off the mortgage. What would my liabilities be with the IRS if I am not profiting in any way?

Your daughter would be entitled to the exclusion of any gain from the sale of her principal residence (IRC Section 121), but not if it is sold/transferred to a related party. See IRS Publication 523, Selling Your Home, for ownership and use tests. There are also potential gift tax return issues regarding the proposed transfers.

I would keep the house in your daughter’s name, and loan your daughter the money for mortgage payments, upkeep, and improvements prior to sale. Then have your daughter pay you back at time of closing (and pay off the bank from the net proceeds).

If the title transfers to you, and then the house is sold, the amount you clear would be a reportable capital gain for federal and state income tax purposes. We recommend that you consult with a CPA to review your specific circumstances.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Paula A. Rummell, CPA, is tax senior manager with H2R CPA in Pittsburgh.

Disclaimer
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.
Financial FAQs

Search the most frequently asked finance and accounting questions and read the responses from PICPA members. Always consult a CPA before taking action.

Search