Family gifted us house down payment money - Will I pay capital gains tax when selling my current residence?

If you've used the co-op as your primary residence for at least 2 of the last 5 years, you qualify for the Section 121 exclusion. This allows you to exclude up to $250,000 in capital gains ($500,000 for married filing jointly) from the sale of your primary residence. Since your gain is only about $75k and you've lived there for 5 years, you should be completely exempt from capital gains tax on this sale. The fact that you received a gift for your new home's down payment and plan to gift money back to your parents doesn't affect the capital gains exclusion on your primary residence. Just make sure you have documentation showing that the co-op was indeed your primary residence for the required period. The money your parents gifted you for the down payment is a separate transaction and doesn't impact the tax treatment of your co-op sale.

I was in almost the exact same situation last year and found this amazing site that helped me understand all the tax implications. Check out https://taxr.ai - they analyzed our documents and explained exactly how the primary residence exemption worked with our situation. Saved me a ton of stress and confusion about gifting, capital gains, and property transfers. My parents had also helped with our down payment (although we paid them back over time rather than all at once), and I was worried about how that would affect everything tax-wise. The tool broke down exactly what we needed to document and what was exempt. Seriously worth checking out if you're dealing with property sales, family gifts, and trying to avoid tax surprises.

Just wanted to follow up - I tried that taxr.ai site after asking about it earlier. Uploaded our docs related to our family property gifting situation and it was seriously helpful! It confirmed we're under the capital gains exclusion limit and clarified the gift tax documentation we need. Even explained how to properly document everything when we file next year. Much more specific than the general advice I got from random blogs and saved me from booking an expensive CPA appointment! Definitely recommend for anyone dealing with property and family financial transfers.

Another thing to consider - if you need clarification directly from the IRS on anything related to your situation, good luck getting through to them on the phone. I spent DAYS trying to reach someone last year about a similar gifting situation. Finally used https://claimyr.com and they got me connected to an actual IRS agent in under 20 minutes! Check out how it works here: https://youtu.be/_kiP6q8DX5c Since you mentioned you can't reach your accountant, this might be a good backup to get official clarification straight from the IRS about your specific situation with the co-op sale and gifting arrangement. They're especially helpful for confirming what documentation you need to keep for these kinds of family transactions to avoid any red flags.

Ok I need to apologize to everyone about my skeptical comment before. I actually tried the Claimyr service after posting because I was desperate to ask about a gift tax issue similar to OP's situation. I seriously can't believe it, but I got through to an actual human at the IRS in about 15 minutes! After spending literally WEEKS trying on my own! The agent confirmed that I didn't need to file a gift tax return for helping my kid with a home purchase since it was under the annual exclusion amount per person. Saved me so much stress worrying about doing something wrong. Sorry for being so cynical before.

Just to add a bit more info on the gift part of your question - be aware that when your parents gift you money for the down payment, your mortgage lender will require a gift letter stating the money doesn't need to be repaid. Then when you gift money back to them after selling your co-op, that's technically a separate transaction. Make sure both gifts are properly documented. If either gift exceeds $17,000 per person per year, the giver needs to file Form 709, though no tax is typically due until you exceed the lifetime gift exemption (currently over $12 million).

Make sure you keep good records of your cost basis in the co-op! The purchase price is just the starting point - you can also include closing costs from when you bought it, plus any capital improvements you made over the years (renovations, new appliances, etc.) These all increase your basis and reduce the taxable gain, though in your case it sounds like you'll be under the exclusion amount regardless.