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My client is a legal refugee, he is living in a house

purchased by his daughter (...
My client is a legal refugee, he is living in a house purchased by his daughter ( Chinese citizen and now living in China) in 2016. The purchase price was $219K, the current market price is about $300k. The house is a duplex. He lives in one unit and rented the other one for 2 years. Now the daughter wants to gift the house to my client. The questions are:When the daughter gifts the house to the father, can she report the value of the house as purchase price $219K, and pay no gift tax, then the father pays the tax on capital gain after he sells it with $300K?
After the title is transferred to the father, can this house be considered the father’s primary residence since he has been living there for 2 years? Can he takes the tax exclusion of 250k if he sells it?
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Answered in 3 minutes by:
2/27/2018
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 928
Experience: Former IRS Revenue Agent
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I'm Fiona, former IRS revenue agent. I am looking at your question and will get back to you soon. Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP,IMTA

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Dear Customer,

If the daughter is not U.S. citizen and/or resident, she does not need to file gift tax return.

https://www.irs.gov/instructions/i709

The father does not qualify for home owner exclusion exemption because he did not own the home.

"You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale."

https://www.irs.gov/taxtopics/tc701

Please feel free to follow up.

Regards,

Fiona

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Customer reply replied 1 month ago
Thank you Fiona!
I followed the link and noticed the following paragraph. Sounds like the daughter needs to file gift tax return. Did I misunderstood it? Thanks!Nonresidents not Citizens of the United States
Nonresidents not citizens of the United States are subject to gift and GST taxes for gifts of tangible property situated in the United States....If you are a nonresident not a citizen of the United States who made a gift subject to gift tax, you must file a gift tax return when any of the following apply.You gave any gifts of future interests.
Your gifts of present interests to any donee other than your spouse total more than $14,000.
Your outright gifts to your spouse who is not a U.S. citizen total more than $149,000.

Dear Customer,

You are right and I was wrong. I hasted in my answer and thank you for pointing that out to me.

Regards,

Fiona

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Customer reply replied 1 month ago
thank you! You have a great evening :)

Dear Customer,

According to Form 709, the donor's basis and the fare market value both need to be filled out.

The market value at the time of gifting is the one the gift tax return reporting and calculation is based upon. Therefore, the value to be reported based on your question is 300K.

Regards,

Fiona

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Customer reply replied 1 month ago
Got it, thank you!

Dear Customer,

Now I look at your answer again. I understand why I answered that way.

The gift and estate lifetime unified tax exemption is $10M.

"The Tax Cut and Jobs Act, Pub. L. No. 115-97

Under this law, the basic exclusion amount for an estate tax return for a 2018 date of death increases to $10,000,000,"

https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax

Therefore, even if the daughter fills out and reports gift tax return because the gift in the year is more than 15,000, the exclusion amount, she will not be subject to gift tax because she will not be over the lifetime $10M limit.

Please feel free to follow up.

Regards,

Fiona

Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 928
Experience: Former IRS Revenue Agent
Verified
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Dr. Fiona Chen
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Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 928
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