Will my mom or I be liable to pay gift tax to IRS if she does a quit claim?

Question

My mom wants to give me her town home for what she still owes on the house. It's got about 50k equity right now. My mom wants to take her name off and put my name on the deed so that I am the sole owner.

I already k now the steps I must take to do this but I'm just wondering what are the tax implications?

I know that my mom mayhave to file a gift tax return to IRS but isn't there some sort of lifetime limit to the amount of the gift where she won't have to pay taxes until that limit is reached?

Also what is the amount of gift based on? The value of the home minus whats owed?

Answer 1

I believe if she puts your name on the title and later removes her name there will not be a sale thus no tax.

Answer 2

Your mother is selling you the house in a bargain transaction.

The difference between the fair market value of the house and the sales price is a gift to you. If this amount is more than $12,000, your mother will file a gift tax return Form 709.

There is a lifetime exclusion of $1 million for gifts and estates. Filing Form 709 will keep track of how much of this exclusion has been used, but no tax will be due until the exclusion is exceeded (if it ever is).

What you are doing from a tax standpoint is not beneficial to you or your mother, as you may have been told. She could rent you the house for the amount of the mortgage note, with little or no tax consequence. When she dies, you could inherit the property with little or no tax consequence.

So those are the tax implications.

Answer 3

You are on the right track here. If the house has $50K in equity, what your mother should do is sign a loan agreement with you for the amount of value she is transferring to you. In this case, about $50K. Each year, she can forgive $11K of the balance due until the loan is 'paid off'. In this fashion, you will not incur any gift taxes on your mother's behalf.

If she 'gives' you the entire value in one year, she will trigger a gift tax return, since the annual limit is $11K.