Capital gains tax on my home sale where my dad was sole owner
3 years ago I paid to buy a house for $47,000 but was fresh out of college and therefore could not qualify for a mortgage, so my dad signed on the house. After fixing up the house, I closed a sale for $95,800 last week. My dad deposited his check directly into my bank account and I’ll be closing on my new house next week under my name. In the meantime, since my old house was not my dad’s primary residence I have to pay my dad the amount of his $48,000 capital gains tax. He falls in the 25-percent income tax bracket, so this should be around a $7,200 tax which is huge for somebody on a $31,000 annual grad student stipend. I’m an honest guy, so I’m making plans to scrape this money together over the next year, but is there any legal way around this?
My old house was legally under my dads name, but I made all payments and handled all finances to do with the house. My new house is under my name, I’ll be closing shortly.
Thanks for your help!
TL;DR: Your dad owes CGT, and possibly gift taxes as well.
None of which transfers ownership. Since you didn’t read this first, your dad owned the house, you lived in it, you made the payments and improvements in lieu of rent. Now he has a capital gain and owes tax on it.
Separately, and apparently entirely without contractual obligation, your dad has given you a gift of $48,000. He should have considered his CGT and gift taxes before doing so. I’m assuming, since you’re going to have to scrape together $7,200, that the entire $48k is going towards the new house?
How you handle your perceived moral obligation to repay your dad is probably more a question for IPS.