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Ask Lane Your Own Question
Category: Capital Gains and Losses
Satisfied Customers: 12459
Experience:  Have been providing Financial and Tax advice for 30 years.Concentration in Corporations, Estate, Income Tax and Business Planning
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I want to give a gift of a previous main home that I lived

Customer Question

I want to give a gift of a previous main home that I lived in for 20 years to my daughter and her husband. They have been living there rent free for the past 10 years. To avoid capital gains because I have not lived there in the last 10 years , what can I do?
Can I give them the home as a gift I still have a mortgage that I have been paying on.
Submitted: 1 year ago.
Category: Capital Gains and Losses
Expert:  Lane replied 1 year ago.
Hi,...Yes you can give this as a gift....There would be income tax to them (gifts & bequests are excluded from income under IRC §102)...And although there would likely be no gift tax either (gift and estate taxes are transfer taxes) unless you've given away more than $5,450,000 (the lifetime gift exemption) you'll just need to file an IRS form 709 (Gift tax return)...Here, simply an informational return, that IRS uses to track AGAINST that lifetime exclusion.
Expert:  Lane replied 1 year ago.
Because there's still a mortgage, what you're gifting is your interest IN the house, essentially your equity....How you handle paying the mortgage going forward is optional....The way to do this without upsetting the mortgage company, if to use a quit-claim deed....A quit-claim deed (does just that) Quits your claim to the property ... it doesn't change the fact that the mortgage company needs to be paid before the house is given outright.
Expert:  Lane replied 1 year ago.
If you do this as a outright gift of the entire property subject TO the mortgage there COULD be gain issues...The amount realized from a sale or other disposition of property includes liability from which the transferor is discharged. Reg. §1.1001-2(a)(1) Thus a gift of encumbered property is treated as a bargain sale. Estate of Levine v. Commissioner, 634 F2d 12....
Expert:  Lane replied 1 year ago.
Another option is to ask the mortgage company to approve the transfer ... essentially letting them assume the mortgage
Expert:  Lane replied 1 year ago.
(sorry for the typo above) there would be [NO] income tax to them, as a result of the gift.
Expert:  Lane replied 1 year ago.
Finally, look at the mortgage and see if it has a due-on-sale clause....A mortgage's due-on-sale clause makes it difficult to give a mortgaged home to another person....Due-on-sale clauses allow mortgage lenders to call in their loans if the homes backing them are transferred to others....If THAT's an issue, you may be able to add them TO your mortgaged home's title, though.
Expert:  Lane replied 1 year ago.
I hope this has helped....Please let me know if you have any questions at all....If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the faces or stars on your screen, and then clicking “submit")...JustAnswer will not credit me for the time and work until you have rated in this way....Thank you!Lane……I hold a law degree (JD, Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security/Medicare, estate, corporate, both for-profit and non-profit, and tax advice, to clients on three continents, since 1986.
Expert:  Lane replied 1 year ago.
Did you see my answer?