Whose name should we put on house's deed?

by Loella Dotterer Haskew, CPA 

My father owns three houses. I've rented the third house for three years. Now he has given me the home I've rented for what he paid ($79,000). We have put it on the market and have an offer for $156,000. Whose name should we put it in? None of the paperwork is done.

I wish you and your father had contacted a CPA before you did these transactions. By knowing the rules ahead of time, you could have essentially avoided all taxes.

There are a number of issues involved. First, did your dad report the rent you paid on your house and take a depreciation deduction on his tax return? Since the value of the house ($156,000) is substantially above the $79,000 value that you paid him, your father has made a gift to you and would need to file a gift tax return.

Neither of you qualifies to take the $250,000 gain exclusion on the sale of the house. The seller has to meet both the two-year residence and a two-year ownership requirement out of the last five years to take advantage of this provision. You only meet the residence requirement. Your dad only meets the ownership requirement.

I conclude that your father's intent was to give you a sum of money. My suggestion is that since the gift may not have been completed (because it was never recorded and no gift tax return was filed), that the house is still your father's. He needs to report the sale on his return and pay the appropriate tax. If he then wishes to give you the proceeds after tax, he should do so, as long as he also files a gift tax return if the amount exceeds the annual gift tax exclusion.

Loella Dotterer Haskew is a Lafayette, Calif., CPA with the firm of Buckley Patchen Riemann & Hall. You can reach her at (925) 284-5262.

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