Expert: Helen P. O`Planick, EA - 5/7/2006

Question
" My elderly Father recently came to live with me because of dementia. He has a condo in Cocoa, Florida. We have decided since he is going to be living with me, that we would sell his condo and use the proceeds to purchase a home in El Paso, TX. I recently put the condo in my name to make the process of the sale easier. He owes 52K, the condo will sell for $190K. By putting the condo in my name I think I have created a capital gains taxable event for myself since it was him, not me that lived in the condo as his primary residence for the last 5 years (he bought in 2001). My question is this: 1.) If I use the proceeds to purchase a home in TX, will I still have to pay capital gains tax? 2.) And if so, is there any way that I will not have to pay the CG tax? 3.) Also, if I must pay the tax, at what percentage will I be taxed at? 4.) Would putting it back into his name help?
Thanks,

Nick.  

Answer
Nick, if you sell the home, you owe capital gains, no matter what you do with the proceeds.  And your basis is Dad's basis.  Had he sold the home, there would have been no taxes to pay.  Since I'm assuming it has been less than a year that you did the transfer, your gain is taxed at ordinary income, so whatever that is is your tax bracket.

Can you gift it back?  Well, first of all, hopefully a gift tax return was done.  Now you will have to do a second gift tax return giving it back to him.  Can the IRS make the entire thing a sham transaction?  They can.  Will they?  I don't know.

This is a prime example of getting tax advice BEFORE doing something, you may have just screwed yourself royally.

Sorry, but sometimes blunt is best.

Helen, EA in PA