change in ownership of house
posted at 3/22/2012 10:22 PM EDTMy mother owns her home jointly with my sister. She is in her 80's and wishes to change the ownership to my brother, and the sister who currently owns it with her. My mother would continue to live in the house. Would my mother or brother have to pay any gift tax, either as "giver" or recipient? Are there any other tax implications? Thank you.
Re: change in ownership of house
posted at 3/23/2012 6:27 AM EDTIn Response to change in ownership of house:
[QUOTE]My mother owns her home jointly with my sister. She is in her 80's and wishes to change the ownership to my brother, and the sister who currently owns it with her. My mother would continue to live in the house. Would my mother or brother have to pay any gift tax, either as "giver" or recipient? Are there any other tax implications? Thank you.
Posted by bblusky[/QUOTE]
There is currently (through the end of 2012) an available gift/estate exemption on transfers of property totaling $ 5,020,0000 (federally). A person transfering property will use some (or all) of this exemption, once they have given away more than $ 13,000 to one person during 2012. To be a complete transfer, however, al "strings" tieing the owner to the property must be severed. The continued occupancy of the property by your mother would give the appearance that she had retained the right to use the property, while she lives (known as a "retained life estate"). If this is the case, whether by explcit language in the deed, or implicit, by the actions of the parties, it is a "string" that remains attached to the property and negates the transfer. Thus, at death, the property would be included in her estate, to the extent of her ownership, and taxed, if her estate exceeds the then available exemption (usually $ 1,000,000 for state estate purposes and federal will revert to this in 2013, absent congressional action). If a gift is effectve (strings cut), the recipient takes over the giver's tax basis (cost) and will pay inocme taxes on the gain that results from using that basis counted against the sales proceeds. If property passes through an estate, the tax basis becomes the value taxed in the estate, usually resulting in a loss on the sale (due to costs of sale, such as stamp taxes and commissoins). The one other consideration is Medicaid based - a gratuitous transfer of property within the preceeding five years will usually disqualify the giver from qualifying for Medicaid for some period equal to the value of the property divided by a monthly cost of care. If your mother retains a life estate in the property, the state will seek compensation for her care from your brother equal to the value of her life estate at the time she entees a nursing home and can enforce its right to compensation by liening the property and suing. You should seek competent legal advice in this regard, should your mother desire to actually execute her intentions for the property's transfer to your brother.
Hope this helps in your tax planning!
Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal
Katz. Nannis + Solomon, P.C.