I would agree with Sean,.. however this question is best presented to a CPA or other tax professional. Remember that while we are professionals in the Real Estate Field, we are not attorneys nor are we Tax Professionals. My advice would be to speak with one of them.

Don't gift the equity of each other's homes. You don't want to eat up your unified tax credit on gifts and estate. It looks to me like you can simply set up the transaction as your sister gives you ordinary and proper consideration for the real estate she is buying from you. She will give you the value of the equity of your mother's home, by form of signing over the title/deed of the property plus obtaining a loan to pay for the home she is buying. Her loan pays off your loan and you sold your principal residence which will be subject to home sale gain exclusion, in all likelihood. The basis in your new home will be the value of your half of the home as determined by the estate plus the value of your sister's portion that she gave to you in your transaction. Your gain in your sale of your old home to your sister will be...GAIN = (Her new loan + her value of your mother's house that she gave you) - (purchase price of your old home + any cost adjustments) - any selling costs. If you have a gain, it should be excluded (up to $500K). If you have a loss, you won't be able to deduct it since it is a related party transaction.

Your sister's basis in her new house (your old house) will be the amount of her loan + the value of her portion of your mother's home that she gave to you in the home sale transaction).

You can document it on the HUD document and in the sale's contract and deed of transfer that is filed with the court. The deed usually says something like X gave $XX, equitable interest in so and so real property at such and such location plus some other kind of consideration for an unemcombered ownership in Y property blah, blah, blah.

Seems like a pretty easy transaction to set up if you have the right smart attorneys and CPAs around you.

Joe

This is mostly a tax question, but--besides speaking with a CPA and/or tax attorney--you might want to check into doing a 1031 exchange.

This really is a tax question and I am not an accountant but one angle I would look into is forming an LLC for ownership of your new home and giving equity stakes how they should be in the LLC.

But once again I am not an accountant or attorney and you should consult with legal and tax advice from a professional.


Sean Dawes