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Barrister
Barrister, Attorney
Category: Legal
Satisfied Customers: 24230
Experience:  14 yrs practice, Civil, Criminal, Domestic, Realtor, Landlord 24+ yrs
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We ( my husband and I ) did a life estate deed transfer back

Customer Question

We ( my husband and I ) did a life estate deed transfer back in 2007 to our daughter {who has her own home} because we are in our 70's and we wanted her to have our home. Appraised at about $160.000 back then but now about 145.000. we just got a letter from IRS stating that we could owe taxes on this transfer, we pay all the taxes we maintain the home, the home has lost value because of we live in rural area, which has changed all of it's codes, and it does need many updates. We live in NJ if this is the case How much money are we talking we live on SSB and small annuity income.
Submitted: 1 year ago.
Category: Legal
Expert:  Barrister replied 1 year ago.
Hello and thank you for using JA! My goal is to provide you with excellent service and help with your legal problem.
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Did you file a gift tax return to exempt any gift amount over the annual gift tax exemption back in 2007 when you made the gift to daughter?
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Thanks
Barrister
Customer: replied 1 year ago.

This may be more than I can comprehend I will cancel this advise

Expert:  Barrister replied 1 year ago.

Ok, let me try to make it a little simpler. When you gave daughter the house but kept a life estate, the gift of the house was worth some amount. Under the IRS tax laws, the person who makes a gift has to pay taxes on any gift over the annual amount that is exempt. In 2007, that annual exclusion was $12,000.
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So for simplicy's sake, lets say the house was worth $100,000. And the life estate (the right to live there for the rest of your life) is worth $15,000. That means that you gave daughter a gift worth $85,000. Deducting the $12,000 annual exemption, that means that $73,000 of the gift is taxable.
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However, a person has a "lifetime gift tax exemption" of a certain amount that they can use up over their lifetime to avoid paying gift taxes. In 2007, that amount was $1 million. So you could have filed a form called a 709 Gift Tax Return and use up $73,000 of that $2 million to avoid paying any gift taxes on the gift.
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However, there is a 3 year limit on filing an amended return so you would need to contact a CPA or tax attorney and see if they could contact the IRS and negotiate a reduced amount of tax on the gift.
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Thanks
Barrister

Barrister, Attorney
Category: Legal
Satisfied Customers: 24230
Experience: 14 yrs practice, Civil, Criminal, Domestic, Realtor, Landlord 24+ yrs
Barrister and 4 other Legal Specialists are ready to help you
Customer: replied 1 year ago.


We are talking about a house that is worth about 150.000 What will we have to pay in taxes in NJ, we are on SSB. there is no room for any kind of taxes,,should we just walk away like many other people are doing? A Korean vet, a couple that has paid every tax bill and worked all of their lives to be treated like we don't care. We have paid more attorney fees then you could every comprehend.

Expert:  Barrister replied 1 year ago.
Ok, a lot of this depends on what the value of the life estate is that you kept. The more it is worth, the smaller the gift you made to daughter and the smaller the gift taxes that would be due.
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Any mortgage amount on the property further reduces the amount of the gift because that reduces the value of the house because of the debt.
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The IRS uses actuarial tables that look at a person's age and life expectancy to determine what a life estate is worth. So if you are 60 and your life expectancy is 80, then the life estate will be worth more than if you are 70 because you will presumably live there for 20 years instead of 10.
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Since you are in your 70s, then the value of the life estate would not be a large amount but to be very honest with you, I am not a CPA and don't know how to calculate the amounts. It will take a CPA or accountant to use the mortality tables and actuarial tables put out by the IRS to calculate the value of the gift taking into consideration any mortgage and your ages at the time of the gift.
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I hate to refer you to another attorney, but a tax attorney could calculate this for you as well as contacting the IRS to see about negotiating an "offer in compromise" to pay a reduced amount on the taxes or possibly even get them waived because you could have exempted the entire amount back in 2007 if you had filed a gift tax return.
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Walking away won't help because the IRS has the ability to garnish any retirement income to recover the back taxes due.
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Thanks
Barrister
Expert:  Barrister replied 1 year ago.

Thanks so much for the positive rating and generous bonus, it is very much appreciated!

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It was my pleasure to work with you and help with your question. Please feel free to ask for me if you need help with anything in the future and I will do my level best to help or get you to someone who can.

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Barrister

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Barrister
Barrister
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14 yrs practice, Civil, Criminal, Domestic, Realtor, Landlord 24+ yrs