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Old 09-05-2015, 07:13 PM
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Capital gains on jointly owned investment real estate

Q: How do two siblings that sell a jointly owned investment property report the capital gains tax on the property and what documentation is needed for each of their tax returns?

Scenario: Two siblings who each file their own 1040 form own investment real estate together (sibling 1 Life Estate, Rem. sibling 2). When they sell the property they plan to split the proceeds 50-50. They are both in the 15% capital gains tax bracket, but sibling one is also subject to the 3.8% Medicare surtax.

How should they report the capital gains tax? Do each of them report their 50% of the proceeds and pay the capital gains based on the rate they owe (sibling 1 - 18.8%, sibling 2 - 15%)? If so, what documentation does each sibling need to submit to the IRS to show their portion of the gain?

If the above is incorrect, what is the correct method please?

Thank You!



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Old 09-05-2015, 11:14 PM
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Q: How do two siblings that sell a jointly owned investment property report the capital gains tax on the property and what documentation is needed for each of their tax returns?=========>>UNLESS they are professional dealers, they do not need to file Sch C of 1040/Sch SE; however, income from the sale of investment real estate( besides a home however, the profits from selling your house needs to be recorded on Sch D if they exceed the maximum allowed capital gain for a primary residence.) or business property is fully taxable on their returns to the IRS/ their state.As joint tenants, as the LTCG from the property is concerned, they ,whether joint or tenants in common, can agree between themselves how the LTCG is to be split and the income tax on that rent will follow the split they agree on. It is important to realise that theLTCG needsm to be actually split in the agreed proportions if this is to be effective for tax purposes.
Capital gains, however, follow the actual ownership, so in the case of a joint tenancy the gain will be apportioned equally to each of the two owners, and in the case of a tenancy in common, it will be apportioned according to the division of ownership. each of them needs to file Sch D of 1040 ;they need to file IRS Form 8949 when they are filing 1040s for the year in which they sold the real estate.then they , each of them need to file the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 44 to determine their tax liabilities on their 1040s.

Scenario: Two siblings who each file their own 1040 form own investment real estate together (sibling 1 Life Estate, Rem. sibling 2). When they sell the property they plan to split the proceeds 50-50. They are both in the 15% capital gains tax bracket, but sibling one is also subject to the 3.8% Medicare surtax.==========>>>Then I guess the sibling subject to the 3.8% additional Medicare tax may be in 20% ltcg bracket due to higher AGI caused by the addition of 50% of the ltcg;the sibling with higher AGI’s tax liability on his/her 1040 ‘d be determined when he/she files a Qualified Dividends and Capital Gain Tax Worksheet.





How should they report the capital gains tax? Do each of them report their 50% of the proceeds and pay the capital gains based on the rate they owe (sibling 1 - 18.8%, sibling 2 - 15%)? If so, what documentation does each sibling need to submit to the IRS to show their portion of the gain?==>>As mentioned above; each of them needs to file Sch D of 1040 /F8949 and also needs to file Qualified Dividends and Capital Gain Tax Worksheets to determine each owner’s tax lability on each person’s 1040; .so, instead of totaling up their transactions on Sch D of 1040, they need to list the ltcg out on Form 8949UNLESS the investment pty is reported on Form 4684, 4797, 6252, 6781, or 8824 or etc.



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