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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I would like to add my Domestic Partners name to our home.

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I would like to add my Domestic Partner's name to our home. Currently, the house is in only my name. The mortgage is also only in my name. The equity in the house is only about $8,000. Will I owe a gift tax? Does the IRS use the FMV only or does it take into account the Liens on the house that would have to be settled as well (causing the value of the gift to be $4,000 instead of $76,000?
Submitted: 11 months ago.
Category: Tax
Expert:  Lev replied 11 months ago.

Lev :

Hi and welcome to our site!
For gift tax purposes - the fair market value of the asset is used.
However - if the recipient also assumes (or considered as assumed) the debt corresponding with that asset - that amount is not included into the gift.
For instance - if the FMV of the house is $150,000 and it has a mortgage attached with outstanding balance of of $140,000.
If you are addicting another person to the title - but not to the mortgage - that would be a gift of $75,000.
However if that person is added to the title AND to the mortgage note - that is a gift of $75,000 (FMV of the asset) MINUS $70,000 (mortgage obligations) = $5000.

Customer:

Would he have to be added directly to the mortgage or could he simply sign and agreement with me to pay for half of the mortgage?

Lev :

In general - when you are adding another person to the title - you need get approval from the mortgage company - and in most cases - the mortgage note should be modified.
The clear way is to have both names on the note.
However - because the mortgage is attached to the property - you may argue that both co-owners are responsible to make mortgage payments because if such payments are not made - the property could be foreclosed. So - there is no such requirements neither to be added directly to the mortgage nor having the agreement between co-owners. But in this case - we are in a gray area - and need to be sure that each co-owner actually makes his/her half of payments.

Lev :

Generally - you do not need to report or show anything.
But in case you are audited - the IRS agent will look into the factual elements relevant to the transaction. You might be asked to proof that the donee is actually takes responsibility for the mortgage balance.
For instance - if a half of the property is transferred - but all mortgage obligations are remained on you - that would be considered a gift of the half of a fair market value of the property.

Lev :

Gift itself - is not taxable income in the US. Please see for reference IRS publication 525 page 31 left column - - http://www.irs.gov/pub/irs-pdf/p525.pdf


Gifts and inheritances. In most cases, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you.
So your friend will not need to claim that gift on the tax return. There is no any amount limit. That is for income tax purposes. That would be the donor who files form 709 - gift tax return - not recipients of the gift. The gift tax return is required when the total value of the gift is above $14,000 (for 2013) per person per year.
There will not be any gift taxes unless the lifetime limit of $5,250,000 (adjusted every year for inflation) is reached.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22703
Experience: Taxes, Immigration, Labor Relations
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