QUESTION
How can my brother divide the proceeds 3 ways and how about the about taxes and reporting to IRS?
Asked on Sep 17th, 2013 on Estate Planning - California
More details to this question:
Just before my Mom passed she signed (witnessed) a quick claim deed to my brother (unified decision) and now the house has sold. We would like to do this legally and need help with this.
12 ANSWERS
By giving your brother legal title before she died, your mother may have created a tax problem. If the house has increased in value from the time she bought it, there can be capital gain on the increase in value. There may be some things you can do to reduce or eliminate the tax; but, it will be some work to get there.
Answered on Sep 23rd, 2013 at 4:59 AM
Business Planning Attorney serving Livonia, MI
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Frederick & Frederick Attorneys at Law
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If your brother conveys a share to you and your other sibling, it will be considered a gift. He will need to file a gift tax return if the amount in question exceeds $14,000 to each of you. If you are both married, then the gift can be $28k before it must be reported to the IRS. Unlikely there will be any tax, but the gift still needs to be reported.
Answered on Sep 20th, 2013 at 3:19 AM
Taxation Law Attorney serving Glendale, CA
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Irsfeld, Irsfeld & Younger LLP
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If everybody agrees the intention was that it goes equally to the three of you, then each reports one-third of the gain or loss. Be sure to file a gift tax return for your late mother.
Answered on Sep 19th, 2013 at 1:18 PM
Thomas Edward Gates
You made a mistake transferring the home to your brother before your mother died. The house sold was your brother's, not your mother and, hence, missed the opportunity for a tax free distribution. The three of you must declare the money you received on your income taxes.
Answered on Sep 19th, 2013 at 12:23 PM
Corporate/Business Attorney serving Beachwood, OH
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Christine Sabio Socrates Attorney at Law
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The capital gains tax could have been minimized if your mother did not transfer the house before her death. Taxes can be substantial if she purchased the home many years ago and the value has increased.If she held that property until her death, there would have been a stepped up basis and when you later sold the house, most likely there would be minimal taxes. The basis your mother had in the property (which the value of the price she paid for the house) would transfer to your brother and he would pay tax on the sale price minus the basis. There are better options that she could have done to avoid probate. Your mother made of gift to your brother, now, your brother is the legal owner of the property and will incur the capital gains liability. He would report this amount on his income tax return for the year he sold the property. If he is splitting the proceeds with his siblings, he is essentially gifting these amounts to them.
Answered on Sep 19th, 2013 at 12:20 PM
3 Awards
It is a shame it was handled that way. Your brother needs to speak with a CPA and attorney about the implications of what was done. He will need to pay the taxes on the gain using your mother's adjusted basis, there is no step up on her death due to the deed and he is responsible for all of that tax. He will then be making taxable gift when he gifts the money using part of his exemption and will need to file a 709 gift tax return. Honestly, you should have consulted an attorney first. This information is only intended to give general information in response to an inquiry. It does not establish an attorney client relationship. This response is only based upon the limited facts presented and is merely intended to assist you in determining if you should contact an attorney to provide you with legal advice.
Answered on Sep 19th, 2013 at 12:19 PM
If the house passed to the son before her death, there may be some income taxes due.
Answered on Sep 19th, 2013 at 12:19 PM
Probate Attorney serving Newport, OR
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Minor, Bandonis & Haggerty P.C.
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Your brother owns the house, the title company will report to IRS the sale of the house in your brother's Social Security number. The sale is probably at a loss (basis is fair market value on the date of your mother's death; if that was a year ago or less then sale price establishes FMV, subtract certain costs and realtor fees and you have a loss). Brother can show on his return the total sale and nominee out the two thirds to the other two of you. That may work. If it doesn't, then brother takes the whole loss and should report gifts to you and the other sibling
Answered on Sep 19th, 2013 at 12:17 PM
Appellate Attorney serving Grosse Pointe Farms, MI
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Musilli Brennan Associates, PLLC
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Need more facts. If the house was quit claimed to your brother alone the proceeds normally would be his and his alone.
Answered on Sep 19th, 2013 at 11:54 AM
The deed made the house your brother's property. This voided the stepup in basis that was available and if the property appreciated in your Mother's hands, then you have taxes to deal with. In order to get money to the others, your brother will now be making taxable gifts of property. To ensure it is done properly, consult with an attorney specializing in estate matters.
Answered on Sep 19th, 2013 at 11:00 AM
2 Awards
Any tax and ownership will be attributed to your brother. Go ahead and distribute the money and have him hold a reserve until after he files his taxes.
Answered on Sep 19th, 2013 at 10:45 AM
Trusts Attorney serving Sacramento, CA
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Law Office of Victor Waid
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Have the escrow company issue three checks in equal sums. No reporting to tax authorities should be necessary, but consult an accountant.
Answered on Sep 19th, 2013 at 10:42 AM