015 – Taxes Associated with Gift of Home
We received a question recently:
My parents own a home that I have been living in, and they have expressed an interest in giving it to me. They do not want me to purchase the home from them, but they are concerned there may some tax implications. I thought if a parent gives property to a child there are no taxes. Is that true? The home has been appraised as is worth $90,000.
You did not mention whether there was a mortgage on the house. When dealing with gift tax issues, the key to remember is that the equity of the property being gifted is what is subject to tax. So, if your home is worth $90,000 and there is no mortgage, you have to examine this question for a gift of $90,000. If there is a $50,000 mortgage associated with the property, then you will examine this question with a gift of $40,000.
First, I am not aware of any special gift tax rules for transfers from parents to children. Your state or county may not charge a deed recording fee or sales tax for transfers between family members, but the IRS will be interested in all transactions.
Every person has the legal right to make gifts up to a certain amount $14,000 in 2015 without any gift tax effect. This is per person, so you can gift $14,000 to person 1, another $14,000 to person 2, and so on. In your case, your parents can each give you $14,000 per year with no tax effects so you could effectively receive $28,000 per year.
If you exceed this annual exclusion amount, that does not necessarily mean your parents will owe any tax. Each person has a single lifetime exemption amount that they can pass free of tax, though you do need to file a gift tax return to acknowledge that you’re using up some of that lifetime exemption. This year, the exemption amount is $5,250,000.
I would certainly recommend that you confirm your plans with your tax adviser first.