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Negative Income Tax Questions

Negative Income Tax is a progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government. Those earning more would pay a portion of their income to those on the lower tier to help in their shortfall. Below are common questions about negative income taxes that are answered by the Experts.

If a person does a quitclaim deed for a rental property that has no mortgage to his child, would there be any negative tax implications for this such as an immediate gift tax?

In most cases there would not be any gift tax due, because currently the total lifetime gift exemption is $5,120,000 until the end of 2012. After the date of January 1st 2013 the total lifetime gifts must exceed $1,000,000 unless congress acts to extend or increase the lifetime exemption amount. However, the donor in this would be required to file a gift tax return reporting the gift, even though no gift tax would be due.

If a person is a United States citizen, living in Hong Kong when they find out that they are eligible to be a British citizen, would there be any negative tax implications if they were to go ahead and get that citizenship even though they have no immediate plans to move to the United Kingdom or hold assets there, but may do so at some point in the future?

In most cases if the person does not live in the UK or earn any income in the UK then there would be no income tax consequences of that person becoming a British citizen. As long as none of the money that person earns is from the UK there would be no change in their tax regime. If a person was to pass away without any assets in the UK then there would not be any inheritance tax consequences as well.

If siblings own a rental property and split the proceeds 50/50 then one gives the other an extra 10% as a gift, would there be any negative tax implications involved in such a transaction?

property up to $13,000 yearly without filing a gift tax return. If the value of the gift is more than $13,000 in a year the sibling will need to file a gift tax return but will not owe gift tax until that sibling’s lifetime gift exclusion of $5,120,000 has been used.

If four siblings inherit an Individual Retirement Account is there a mechanism to demonstrate to the IRS that the distribution was intended for the prior year and therefore remove the negative tax consequences that will undoubtedly affect all the siblings?

Typically since the siblings are cash basis taxpayers they must report the income in the year received. The only recourse would be with the financial institution that “dropped the ball”.

In order to avoid probate on a person’s death, is it practical to have their property in theirs and their grown child’s name without being liable for capital gains or making it susceptible to any creditors that the child may have?

In most cases if they make a child joint tenant this could have negative tax consequences on the child in the future. Since in this case the child is their closest living relative they would get the property on the step up basis. Also, the amount would be subject to a reduction of the lifetime gift exemption if it exceeds $13,000. When they decide to sell the property they would owe capital gains. They would not personally be liable for their debts; however the property can be attached by their creditors. Typically an Estate Lawyer would be a great help in resolving any issues that might arise in a case such as this one. Negative Income tax questions can create many questions, and in some cases create many problems. When a person is responsible for taxes that are owed it can be a stressful time, filled with anxiety and worry. There are many forms of negative taxes and an individual would do well by seeking the advice of an Expert.
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