Discussion:House gifted

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Erk (talk|edits) said:

8 January 2007
I have a new client that gifted a home from their parents. Should a gift tax return been filed? Title is in the client's name. Would their basis be the market value on date of transfer? (Home appreciated significantly since parents owned it) Should a late gift tax return be filed?

Thank you for all your thoughts!

Blrgcpa (talk|edits) said:

8 January 2007
Was it a gift or a life estate? If the parents made an outright gift, then they should have filed a gift tax return. The basis transfers at the donors basis and acq date.

A life estate is a different matter.

Bengoshi (talk|edits) said:

8 January 2007
Erk, I assume you meant your client (child) received the home from his/her parents as a gift. As Blrgcpa notes, your client's basis is a "carryover basis" from the donor parents. The the amount of gift itself is the fair market value on the date of the gift (less the applicable annual exclusion for gifts of present interest -- $12,000 for 2006). A gift tax return probably needs to be filed by the donor parents for the tax year in which the gift was made.

On a side note, b/c you're talking about appreciated property, unless your client is doing this for elder law planning or to reduce their gross estate, its probably a bad move. Some tax practitioners might recommend your client give back the real property to the parents if done soon after the gift, and have the parents die with the property in their estates.

Lap (talk|edits) said:

9 January 2007
Erk, as Birgcpa mentioned it was probably not a good idea to gift the home to the child. If the parents leave the home in their estate and no medicare/medicaid issue are a concern, then the child gets the house at fair market value on the day of death of surviving parent which could have very favorable tax benefits

Drpcpa (talk|edits) said:

9 January 2007
FYI - if it is a life estate, then there would be no $12,000 exclusion since this is considered a gift of a futere interest. The entire calculated value of the gift would be subject to gift tax.

WesR (talk|edits) said:

9 January 2007
Hi the gift cannot be stated as a "bad move" (altough the elder law exception was noted) if no one knows the underlying reasons. If it was done for nursing home protection it maybe a GREAT move. One does not worry about capital gains when you do nursing home protection. Who cares about 15% of the asset value when you are trying to save 100% of the value. If you are worrying about a step up, above commentators have not possibly considered that if the parents die living in the home they will get a step up despite not being on the deed. So erk file the gift tax return and take the rest of the commentary with a grain of salt. Sorry I rant. bye

Dennis (talk|edits) said:

9 January 2007
I add to Wes' rant. The term "calculated" in Drpcpa's post is either misleading or in error. The gift of future interest would be the fair market value of the property. Value of retained interest is zero. Reg. 25.2702-2

Drpcpa (talk|edits) said:

9 January 2007
What I meant by "calculated" value is that a calculation needs to be made to split the fair market value of the property between the life estate and the remainder interest. The gift isn't the entire home value. My main point I was trying to get across is the fact that there isn't a $12,000 exclusion available in the case of a gift of a future interest. Sorry if my original post was misleading.

Dennis (talk|edits) said:

9 January 2007
That is what I thought you meant, Drp. You are wrong. I emphasize. The reduction in value for the retained life estate is specifically zero.

Bengoshi (talk|edits) said:

9 January 2007
Thanks for the commentary Wes. That's essentially what I meant though you elaborated on subject much better.

WesR (talk|edits) said:

9 January 2007
Hi maybe alittle more pepper as well. :) bye

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