Hi all,

I owned a home since 2005. It was my primary residence for 2005 - 2008 then became my rental property 2009 - 2014. I gifted part of the home to my mom in 2014 by adding her to the title. My mom has been living there for two years since 2014. The home qualifies as primary residence for my mom but not for me.

I filed IRS Form 709 in 2014 indicating I gifted 50% of the property tax assessed value of the home and 50% of the cost basis of the home as of 2014 to my mom. Since I used the lifetime gift tax exemption I didn't owe any tax.

Now we are selling the home and I want to distribute 60% instead of 50% of sales proceeds to my mom using the additional amount to help her buy a condo. At the same time it reduces my capital gain tax liability as my mom does not have to pay capital gain tax in either situation due to $250K home sale tax exclusion.

In this situation how we distribute the sales proceeds is different from how we reported the % ownership in Form 709 filed in 2014.

How do we handle tax reporting correctly without triggering additional tax liability?

Currently I have two best-guessed approaches after tons of research:

Have the closing agent indicate 60% of the sales proceeds (whatever that is) goes to my mom and 40% goes to me in the HUD and report the two dollar figures on two separate 1099S forms (one for my mom, one for me) respectively. Then either -

(1) amend Form 709 filed in 2014 by filing a new one indicating I gifted 60% of the property tax assessed value of the home and 60% of the cost basis of the home as of 2014 to my mom.
or
(2) file another Form 709 in 2016 indicating I gifted 10% of the sales proceeds and its cost basis (equivalent to 20% of my cost basis for 2005 - 2016) to my mom.

We are closing in just a few days and would really appreciate some valuable advice! Many thanks!