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Richard
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 45641
Experience:  29 years of experience as a tax, real estate, and business attorney.
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Our In-laws want to quitclaim there house worth $225K to my

Resolved Question:

Our In-laws want to quitclaim there house worth $225K to my wife and myself. House is owned free and clear with no leans or back taxes.

What are the immediate tax implications to them and us?

They want to remain in the home until death (very elderly). Do I have to rent it back to them and claim income every year?
Submitted: 1 year ago.
Category: Tax
Expert:  Richard replied 1 year ago.
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good afternoon. This is a gift and not income so there are no income tax consequences to you. Also as a gift, there should be no gift tax consequences. Recipients of gifts are not subject to gift tax. And, there should also be no gift tax due from the donor. Each donor can give $14,000 per year per person under the annual gift exclusion. In addition to that, each person has a $5,120,000 lifetime exemption....which means a person can give a cumulative amount of up to $5,120,000 in gifts without incurring gift tax....the donor must file a gift tax return to let the IRS know how much of the lifetime exemption is being used, but there will be no gift tax until cumulative gifts have exceeded the $5,120,000. You can simply allow them to live in the house for no cost and would not need to charge them rent. If they pay the expenses, you can just treat those as reimbursements and you would have no issues with not dealing with this on your tax return.



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Customer: replied 1 year ago.

So by quitclaiming the entire house and value is $225K aren't they exceeding the annual exclusion or will the IRS just space out the "gift" exclusion to multiple years?


 


would the house still be partially considered theirs until the entire value of the gift was reached.


 


I was told I would have to rent it back to them for fair market value to allow them to live in it.


 


also i thought the lifetime exclusion was $1,125,000. Did something just recently change?

Expert:  Richard replied 1 year ago.
Thanks so much for following up. Yes, they will be exceeding their annual exclusion, but then they each have a lifetime exemption in addition to that annual exclusion of $5,250,000 for 2013. They would have to exceed that before any gift tax would be due. No, they can give the entire house to you now. You are not required to rent the house to them; you can simply let them live there.


With regard to the lifetime exemption, I have provided you the following from the following IRS website: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/What's-New---Estate-and-Gift-Tax:

"The annual exclusion for gifts is $11,000 (2004-2005), $12,000 (2006-2008), $13,000 ( 2009-2012) and $14,000 (2013).
The applicable exclusion amount is increased to $5,000,000 for estates of decedents dying on or after December 31, 2009.
The applicable exclusion amount for gifts is $1,000,000 (2010), $5,000,000 (2011), $5,120,000 (2012) and $5,250,000 (2013)."

Customer: replied 1 year ago.


i pasted in the address you gave me but only took me to an IRS homepage.


 


is there a .com or .org missing on the end?

Expert:  Richard replied 1 year ago.
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/What's-New---Estate-and-Gift-Tax


Try it without the : at the end. I just tried it again and it worked fine.
Customer: replied 1 year ago.

thanks, XXXXX XXXXX work however it just confused me more.


 


it did list the lifetime exlusion at $5.2M (and change) BUT it then later said the maximum anually exclusion is $14K per donor to donee.


Very confusing, as they want to immediately quit claim entire house so I woudl think they would have to report the entire amount next year and would only be allowed the $28K and then get hit with taxes on remainding gift.


 


Mother in law just got diagnosed with advance stage cancer and does not want house to be subject to medical bill payment which is why the quit claim is desired.


 


thanks for your patience....really need to understand this quickly.


 


 

Expert:  Richard replied 1 year ago.
No worries....I'm here to help. There are two distinctive exclusion amounts....One, each person can give $14,000 per donee away under the annual gift exclusion; there is no gift tax and no reporting requirement. Two, if one gives more than the $14,000 per donee, THEN the donor has the lifetime exemption amount available. Under that, until the donor has used up the $5,250,000 in lifetime gifts, there is no gift tax due; only a gift tax return must be filed to let the IRS know how much of the lifetime exemption is being used.

So, if the house is worth $225,000 and owned by both of them....they can each give $14,000 to each of you under the annual gift exclusion. That's $28,000 from your mom in law and $28,000 total from dad in law. That's a total of $56,000 under the annual gift exclusion. That leaves $169,000. They would then file a gift tax return (Form 709) to report that $169,000 of their lifetime exemption was being used.
Customer: replied 1 year ago.

getting real close and this will sound like a crazy question but how will that impact them/us at death when estate is being settled? Not even sure I am asking that question correctly. They dont own a ton more than the house/cars/contents in house....dont believe they have life insurance, so not sure other than the house cant be much to settle after death. Not sure how that works. Mother in law sure to have large medical bills coming soon. Apreciate any further insite you can provide, and again, thanks!

Expert:  Richard replied 1 year ago.
If they give it all to you now, it has no impact at death because they don't own it. Thus, the house would not be impacted by any bills they may incur. :)
Customer: replied 1 year ago.
Last question I promise.....would that be considered capital gains for us?

Thanks!
Expert:  Richard replied 1 year ago.
It would not because it is a gift. It will be a capital gain to you only if you sell it. You're welcome.
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 45641
Experience: 29 years of experience as a tax, real estate, and business attorney.
Richard and 7 other Tax Specialists are ready to help you
Expert:  Richard replied 1 year ago.
Thank you so much for the positive rating! I appreciate having had the opportunity to serve you! If I can be of assistance to you in the future, just look me up and I will be happy to help!

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