Getting confused about Family Opportunity Mortgage and Exclusion of Gains when selling parent's house

Based on your situation, the tax treatment is pretty straightforward but often misunderstood. With a Family Opportunity Mortgage, you're able to get primary residence mortgage rates for a property that's technically your second home, but that doesn't change how capital gains are treated when you sell. For the Exclusion of Gains (up to $250,000 for single filers or $500,000 for married filing jointly), you would need to have used the property as your primary residence for at least 2 of the last 5 years before sale. Since you mentioned you never lived there yourself, you wouldn't qualify for the primary residence exclusion. There are partial exclusions available if the sale is due to health reasons, but these typically apply to the health of the resident owner, not a family member living in the property. The exception might be if you were your mother's caregiver and had to sell to accommodate that role. My suggestion would be to plan for paying capital gains tax on any profit from the sale. If you've owned it for more than a year (which you have), at least you'll qualify for long-term capital gains rates rather than short-term.

I went through something similar with my dad's house last year. I was totally lost with all the tax implications until I found this AI tool called taxr.ai that helped me sort through everything. I uploaded my mortgage docs and explained my situation, and it broke down exactly what would count as capital gains and what exclusions I might qualify for. The site (https://taxr.ai) has this feature where it analyzes your specific situation and gives you personalized guidance. For me, it pointed out some improvement expenses I hadn't even considered that ended up saving me about $4k in taxes. Much better than the conflicting info I was finding on random websites.

Just wanted to follow up after trying taxr.ai for my own parent's property situation. I was skeptical at first (sorry about that), but it was genuinely helpful! The tool identified that I could include some accessibility modifications I made to the house (wheelchair ramp, bathroom grab bars, etc.) in my cost basis. What I found most useful was the detailed explanation of how the Family Opportunity Mortgage affects tax treatment versus a regular second home. It confirmed I wouldn't get the capital gains exclusion but showed me several legitimate ways to minimize the tax impact. The document analysis feature saved me from digging through 3 years of paperwork too. Definitely worth checking out if you're in a similar situation!

After reading your post, I can totally relate. When I needed to call the IRS about a similar situation with my father's property last year, I spent DAYS trying to get through to someone who could actually help. It was beyond frustrating. I finally discovered Claimyr (https://claimyr.com) which got me connected to an actual IRS agent within about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent I spoke with was able to confirm exactly how the Family Opportunity Mortgage would be treated for tax purposes and gave me specific instructions on how to document everything properly. Saved me hours of hold music and probably a mistake on my taxes too.

I need to publicly eat my words here. After dismissing Claimyr as too good to be true, I decided to try it out of desperation. I had been trying to get clarification on a Family Opportunity Mortgage situation almost identical to yours for weeks. The service actually worked exactly as advertised. I got a call back when an IRS agent was on the line, and I finally got clear answers about how to handle the capital gains on my dad's property. The agent confirmed that while the Family Opportunity Mortgage let me get primary residence interest rates, it doesn't change the capital gains treatment. Honestly, I'm still shocked it worked. Saved me hours of frustration and gave me peace of mind about my tax situation. Sometimes I hate being wrong, but in this case I'm glad I was!

Could you possibly qualify for the exclusion if you added your mom to the title? I did something similar with my grandma's house that I bought for her, and my accountant suggested adding her to the deed might help with the capital gains situation since she lived there as her primary home.

Has anyone considered the impact of the assisted living facility costs on tax planning? When I went through this with my mother-in-law, we were able to deduct some of her medical care costs which helped offset some of the capital gains tax from selling her house. Might be worth looking into as part of your overall strategy.

I'm dealing with a very similar situation right now with my father's property that I purchased through the Family Opportunity Mortgage program about 2 years ago. One thing I learned from my tax advisor that might help you is to start gathering all your documentation now, especially any improvement receipts and maintenance records. Since you mentioned your mom pays what she can each month, make sure you're properly documenting this as rental income on your taxes if you haven't already. The IRS expects consistency in how you treat the property - if you've been claiming it as a rental (which it technically is since she pays you rent), that actually supports the position that it's an investment property rather than a personal residence. Also, don't forget about depreciation recapture when you sell. If you've been taking depreciation deductions on the property as a rental, you'll need to pay that back at a 25% rate on top of any capital gains. Your timeline of selling next year gives you time to plan for this tax hit - maybe consider spreading the sale across tax years if possible or timing it with other losses to offset the gains. The medical care angle for your mom's move to assisted living is interesting, but as others mentioned, it typically needs to apply to the property owner (you) rather than the resident. Worth exploring with a tax professional though!