Hello jdaniel,
A QCD is the best way to transfer property to somone else's name if you are not actually selling the property and no cash is changing hands.
Your parents will not owe any taxes as a result of this transaction, however, the IRS views this as though you have given your parents a gift. Any gift which exceeds the value of $13,000 in one year needs to be reported to the IRS by filing Form 709. Each individual is allowed to give up to $1 million in lifetime gifts before they actually owe any gift taxes, but gifts which exceed the allowed annual exclusion of $13,000 must be reported and those gifts then reduce your remaining lifetime limit.
As far as the property taxes, once your parents become the legal owners of the property, they are also the ones responsible from that point on for the property taxes which are due.
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Thank you jdaniel
Merlo,
Would a quit claim deed be the best way to accomplish or is there another way to transfer ownership so that it does not affect the lifetime gift allowance?
Would you use a quit claim if you were in this situation?
Thanks,
Jdaniel
Hello Jdaniel,
There is no way around declaring this as a gift unless you actually sell the property to your parents at its fair market value. And then you would be required to pay taxes on any gain you had from the sale.
Using up a portion of your lifetime exemption on gifts may only be an issue if you think you will actually give away up to $1 million in your lifetime, after which time your gifts become subject to gift tax. If you think that is not likely to happen, then this should not create any problems for you. I know that I personally would never exceed or come close to that gift limit, so yes I would choose the quit claim deed option.
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So when my parents quit claim this lot back to me in a few years, will this then count against their lifetime gift allowance as well?
How is fair market value determined if there has not been an appraisal? Is it the local tax assessor's determined value?
Hello again jdaniel,
Yes, when your parents gift the property back to you, they will follow the same procedures and file the Form 709 to report the gift.
If there is no current appraisal on the property, you can use the county assesor's value as the value of the gift.
Thank you jdaniel and let me know if you have more questions.
Ok, say it went as $50,000 towards my parents gift allowance...and later down the road they have to pay gift tax on that 50,000 because they happen to gift over $1 million, what would the gift tax rate on that $50,000 be?
Following is a table that shows the current gift tax rates. These rates can change from year to year, so the actual amount would depend on what rates are in effect at the time this might occur.
From
To
Is
of Amount Over
$0
$10,000
18%
10,001
20,000
1,800 + 20%
10,000
20,001
40,000
3,800 + 22%
40,001
60,000
8,200 + 24%
60,001
80,000
13,000 + 26%
80,001
100,000
18,200 + 28%
100,001
150,000
23,800 + 30%
150,001
250,000
38,800 + 32%
250,001
500,000
70,800 + 34%
500,001
750,000
155,800 + 37%
750,001
1,000,000
248,300 + 39%
1,000,001
1,250,000
345,800 + 41%
1,250,001
1,500,000
448,300 + 43%
1,500,001
2,000,000
555,800 + 45%
2,000,001
& Up
780,800 + 48%
Thank you jdaneil
This chart here shows gift taxes on items starting from 0- 10,000. But in your earlier response, you mentioned gift taxes did not start until you reached $1 million. Which is correct?
The chart I gave you is correct, but it does not kick in until after the $1 million has been used. In other words, the chart already assumes you have given away $1 million, and the taxes are now due on the amounts listed which exceed $1 million.
So as an example, if you give away $1 million, your next $10,000 after that is taxed at 18%, and the rates increase based on a graduated basis.
Thank you
Ok thank you. If I were to quit claim the lot to myself and my parents, would we only have to count 50% of the value as the gifted amount?
Yes, that is exactly what you would do if you only add their names to the deed as joint owners. You would then only report giving a gift of half the current value of the property.
Accountant
25+ years tax consulting. Specializing in returns for US citizens living abroad