Posted by Frank Chin on August 30, 2005 at 10:01:31:
Not giving you legal advice here.
Anyone and everyone giving something to someone else is subject to Federal and in some states, State gift taxes, and in your case, the tax is based on the appraised value of the house, less the mortgage, i.e. the equity of the house. The gift tax is tied in with estate taxes, and the basics are:
One person can give another person a certain amount “gift tax free”, each year. It used to be $10,000/year, but since been raised to over $11,000/year, or more.
One person can give another person a gift beyond the $11,000, report it, and not pay the tax, but reduce the “unified credit” that is available at death. This unified credit is the amount of the estate not subject to estate tax.
For more information, IRS publication 950 should explain it.
FYI, someone I worked with someone who gifted an apartment building to his daughters, by quit claiming, and reported the transfer for his gift tax. He received a letter from the NY State Tax department requesting an appraisal of the property on the date of the transfer to insure that the gift and tax was reported properly.
We ourselves did RE transfers, i.e. gifting within our family, and we had an estate attorney plan it out, to eliminate the gift tax. So, its’s a lot more than making up a new deed.
Also, there might be capital gains issues if the property appreciated in value while your dad had it.
Now, I know several friends of the family who quit claim properties, never reported anything, but I hate to worry about being hit with taxes and penalties later on. Governmant computers seem to catch on to more and more things these days.