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Husband and wife convey a lot to son by quit claim deed with

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a consideration sum of $100...
Husband and wife convey a lot to son by quit claim deed with a consideration sum of $100. Form 709 Gift Tax Return was filed with the appraised fair market value $300,000. The original price paid by parents was $150,000. What is the cost basis when the son sells this property in the future? Is it $150,000 or $100?
Submitted: 8 years ago.Category: Tax
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11/3/2009
Tax Professional: MequonCPA, Certified Public Accountant (CPA) replied 8 years ago
MequonCPA
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2,342
Experience: CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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DearCustomer-

 

Upon transfer, you essentially had a gift/sale transaction. You sold your son 1/3000 of the property for $100. At the time your basis in that portion was $50. So you should have reported a gain on that portion of $50. You also gifted him the balance 2999/3000.

 

Your son's basis in the property is your basis in 2999/3000 of the property or $149,950 plus his purchase price on 1/3000 of $100. Thus his basis is $150,050.

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Customer reply replied 8 years ago

Hello Steve,

 

It takes us a while to get the whole concept. We did not know that in giving this land as 100% gift, no amount of $$ has to be put on QCD. We have just found out. So the $100 defeated our purpose. Is there a simple way to correct the QCD to eliminate the $100.

You are sharp.

Thank you.

 

 

Tax Professional: MequonCPA, Certified Public Accountant (CPA) replied 8 years ago

DearCustomer-

 

It would be difficult to reverse a recorded transaction that happened in a prior year. This $100 amount is nominal and was used for recording the transfer, not for income or gift tax purposes.

 

When you filed your gift tax returns you probably reported 100% of the property as being gifted. You should be aware that if your return is audited you may need to explain the transfer. However you would only owe $7.50 in federal tax (15% of $50). plus interest and penalties.

 

As your intent was to gift your son the property, he should use the $150,000 as his basis.

MequonCPA
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