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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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last year my mother gifted her house #which she bought for

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last year my mother 'gifted' her house #which she bought for $460,000 in 2007# XXXXX a deed transfer. I know she must report this with a tax form, but which form? I don't expect it any other inheritance so will this count towards the lifetime gift/inheritance exemption? IE neither she nor I have to pay any tax on it?

Secondly, reading a bit about it I am confused as to what is the 'basis' value she has to report. Is that just the value of the house when she transferred it to me?

Thirdly, My parent's income was below $7000 in 2008. Do they also need to file a normal tax return? I understand that if your income is below $16000 you do not need to file a return.
Hello 6421,

Regarding the transfer of the house, your mother will need to file Form 709 which is a Gift Tax Return. More than likely no gift tax will actually be due, but this is the form she needs to file. It is a separate return and it is not part of any personal tax return which she would file.

Under current law each individual is allowed to give gifts in their lifetime of up to $1 million before any gift tax becomes due. There is also an annual exclusion of $13,000 on gifts which does not even count towards your lifetime exemption, but gifts that exeed the $13,000 annual limit must be reported on Form 709. No tax would be due with the form as long as your mother has not already used up her allowed lifetime exemption of $1 million, but the value of the gift reported would then reduce her remaining lifetime gift exclusion amount.

On Form 709 it will ask for your mother's adjusted basis in the property. That will be the price she paid for the home plus the cost of any improvements she made. The form will also ask for the current market value of the property.

As far as your parents needing to file a tax return, if their total income for the 2008 tax year was less than $17,900, then they do not need to file a return, unless any of their income was from self employment. If they had self employment income of $400 or more, then they must file a return. But if their only income was from wages or retirement benefits, then no return is needed if their combined income is less then $17,900.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you 6421



Edited by Merlo on 10/2/2009 at 8:45 PM EST
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