Inter-Family Real Estate Sale

Two adult sisters inherited mother's house, following mother's death in 2010. Both sisters are married. At that time, house FMV was $340,000. They have both, alternatively, lived in the house since then. Now, in 2016, FMV has increased to $380,000; sister "E" is selling her half to sister "S." Contract for Sale specifically shows "assessed value " for her half at $190,000, but the sales price "consideration" at $128,000. (Two sisters included some other back-and-forth debts of settling mom's estate into one sales contract.) Contract for sale specifies monthly payments of $1,500 from "S" to "E" for 85+ consecutive months with no interest.

Questions: 1. If "E" sells a property with a FMV of $190,000 for only $128,000 does that trigger a gift tax return for "E," for the $62,000 difference, or at least for the portion above the $14,000 gift exclusion?

Will "E" be required to report imputed interest on her tax return at the published rates for the next 7+ years? If so, is this rate fixed when the sales contract is signed or does it change annually?

Would this have been better structured as two transactions: a real estate sale from "E" to "S" for the full FMV of 0,000 and a second promissory note from "S" to "E" for ,000?

The contract for sale is apparently incorrect. If the actual amount owed also includes other factors, they should be considered as such in the contract, and not netted out as the sale price.

Assuming that the actual sale price is below the market value, though, then yes, a gift tax return may be required.

If the contract of sale does not include interest in the deferred purchase price, then one of the two of them will be required to recognize interest income. Imputed interest is calculated based on the rate published on the date the debt is incurrect, and varies by the amount of time allowed for repayment.

It's impossible to tell based on the sketchy information you have provided. The best person for you to ask about this is your tax preparation professional - CPA or Enrolled Agent. If you don't have one, get one - this transaction is clearly beyond what you can handle without help.