House being gifted to me... some questions

[Dryst999]

My mother plans on filing a quitclaim deed to have her house transfered to my name, the house is completely paid for. I have a couple of quick questions that my googlefu has been failing me on.

We are seeing a lawyer in 3 weeks to talk about the transfer and to setup the quitclaim deed paperwork, I can't find a definite answer on if this is considered a "taxable gift" or if it will be tax free... she has never given a taxable gift before and the house is only worth 100k which is nowhere near the federal 1,000,000 limit. I know we are seeing a lawyer soon but i'm just trying to get an idea on how much this deed transfer is going to cost... the only thing I can find on gift tax rates is that it is equal to the highest income tax rate of 35%... paying 35k to gift a 100k house doesn't seem correct..

Also will gaining 100k in equity hurt or help me tax wise? I'm already paying her property taxes which are only $800/yr so that's not a big deal.. will this have a negative impact on my tax returns? I'm a renter and own no other equity at the moment. I'm guessing having 100k in equity will be a good thing when I try to get a home owners loan in a few years to buy a house on my own?

Again i'm meeting with a lawyer, just trying to get an idea on how much this transfer could cost us before I see him.

 

[guyver01]

http://www.irs.gov/businesses/small/article/0,,id=108139,00.html

What is considered a gift?
Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.

What can be excluded from gifts?
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

1. Gifts that are not more than the annual exclusion for the calendar year.
2. Tuition or medical expenses you pay for someone (the educational and medical exclusions).
3. Gifts to your spouse.
4. Gifts to a political organization for its use.

What if I sell property that has been given to me?
The general rule is that your basis in the property is the same as the basis of the donor. For example, if you were given stock that the donor had purchased for $10 per share (and that was his/her basis), and you later sold it for $100 per share, you would pay income tax on a gain of $90 per share. (Note: The rules are different for property acquired from an estate).

 

[Dryst999]

Just found this, if i'm reading this right it means that even if I go above the 13k/yr limit we still will not be taxed b/c she will not have reached the 1,000,000 lifetime limit.... or am I incorrect?

http://www.fairmark.com/begin/gifts.htm
Giving more than the annual exclusion amount

If you give more than the annual exclusion amount to one person in a single year you'll have to file a gift tax return. But you still won't have to pay gift tax unless you gave given a very large amount. The rules let you give a substantial amount during your lifetime without ever paying a gift tax. As of 2008 the amount is $1,000,000.

You don't use up any of this amount until your gifts to one person in one year exceed the annual exclusion amount. For example, if you make a $14,000 gift in 2008, you have used up only $2,000 of your lifetime limit.

 

[DesiPower]

Please donate it to ATOT neffing trust fund, we will take care of it.

 

[GuitarDaddy]

Yes you are correct your Mom will not owe any gift tax, as 100k is well below the lifetime limit.

How old is your Mom? I ask because $800 a year sounds pretty low for property taxes, and I was wondering if she's over 65 and her property taxes are frozen?

My Dad wanted to deed his house to me a couple of years ago but I discovered since he's in his eighties and his taxes have been frozen for twenty years @600 per year that if we transfered the deed to me the taxes would jump to $3500-$4000 per year. So we decided to leave it in his name until his death.

 

[Insomniator]

Can someone explain to me why gift tax is NOT complete bullshit? Similarly, why do we pay sales tax on used cars?

I hate the government.

/rant.

But seriously I thought the limit was 20k? Its 1 million now?

 

[GuitarDaddy]

Gift tax and inheritence tax are viewed as the same tax and they are at the same rate 45%. If there was no gift tax, you could avoid inheritance tax by gifting away all you assets before you die.

And yes the exemption is 1 million, and it also counts against the inheritance tax exemption which is 3.5 mil as of 2009

 

[dullard]

Can someone explain to me why gift tax is NOT complete bullshit? Similarly, why do we pay sales tax on used cars?

I hate the government.

/rant.

But seriously I thought the limit was 20k? Its 1 million now?

The gift tax is a necessary tax. Why? It fills a massive tax loophole that would destroy our country's finances otherwise.

Imagine if there was no gift tax and companies realised that they could pay you minimum wage but "give" you the rest of your income. Suddenly you pay no income tax and very little payroll tax. You benefit greatly and in turn, you'd be glad to do it for a little less salary (so your company benefits too). Soon the US government is bankrupt and we can't afford things like an army or roads.

Same goes with "giving" to avoid sales taxes or "giving" to avoid estate taxes.

One entity can gift another entity up to $13k tax free right now. So if the OP had two parents and if the OP had a spouse, then each parent can give each person $13k tax free (total of $52k). And the first $1million or so is exempt so the tax only kicks in after the $1M and after the $52k/year. It really doesn't come into play for virtually anyone on this forum.

As for used cars, that is up to your state to decide. Generally the dealer has put in lots of new stuff (tires, body parts, repair parts) and put in a lot of labor (cleaning, maintanence, repair work). Why should you pay sales tax when buying a tire but not when buying that same tire attached to a used vehicle? The materials and labor should be taxed. Although, I agree that the base price of the car itself shouldn't be taxed.