Property "Quit Claim Deed" to child for $1?

[AZ-Tax]

Father (single, living and No trust) Quit Claim Deed one of his houses to child for $1. Child turned house into residential rental. Am I correct that the child can depreciate either the FMV or all qualifying exps related to purchasing the house (outside of the land) which ever is less? Does the $13K gift tax exclusion come into play?

http://www.irs.gov/businesses/small/article/0,,id=108139,00.html#2

From the link above: What if my spouse and I want to give away property that we own together? You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000 (2006-2008), $26,000 (effective on or after January 1, 2009).

[ChEAr$]

Father (single, living and No trust) Quit Claim Deed one of his houses to child for $1. Child turned house into residential rental. Am I correct that the child can depreciate either the FMV or all qualifying exps related to purchasing the house (outside of the land) which ever is less? Does the $13K gift tax exclusion come into play?

http://www.irs.gov/businesses/small/article/0,,id=108139,00.html#2

From the link above: What if my spouse and I want to give away property that we own together? You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000 (2006-2008), $26,000 (effective on or after January 1, 2009).

AS to the first part of your question, this reeks of a gift of property, the $1 being a nominal value to satisfy some legal requirement. As such, basis of property in child's hands is same as basis of parent.

Since there is no IRS form to fit the situation, my practice is to use a form letter filled in with information relative to the basis of the property, land and building(s).

If child is married and title went to child and wife, parent can give $ 13,000 apiece. No give tax return required I think; but verify that. If parent it married, then he and wife can give !3,000 apiece to each of the children, that's 52,000 total. But in this case a gift tax return must be filed.

[taxea]

If they have a written document on the transfer of the real estate this needs to be taken into account. Is the transfer recorded as a sale or just a transfer of title?

1. research and determine the actual basis to the child of the property
2. research and determine the depreciation rules based on the result of #1
3. be sure to deduct the value of the land
This will give you the depreciation basis for the Sch E

3, research and determine how to report the gift of the parent's basis based on how the transfer was recorded. i.e, if it is recorded as a sale for 1. and there is no mention of any "gift" amount...can they legally subtract the dollar and/or 13K per parent from the basis for purposes of the gift tax report?

[Gary2]

3, research and determine how to report the gift of the parent's basis based on how the transfer was recorded. i.e, if it is recorded as a sale for 1. and there is no mention of any "gift" amount...can they legally subtract the dollar and/or 13K per parent from the basis for purposes of the gift tax report?

It's not that complicated. Researching that $1 will take more time than the 35 cent gift tax savings is worth, but I'm pretty sure that the value of the gift is the FMV on date of transfer minus any consideration. The 13K is addressed in the Form 709 and its instructions, so I don't see why there's a question about it.

Whether the documents say gift or sale doesn't really matter. What could matter is whether it's a full transfer to the child, as opposed to a trust or keeping a life estate or partial interest, etc.

[AZ-Tax]

An AZ "Quit Claim Deed is

A Quit Claim Deed is one type of real estate deed used in Arizona to transfer real property rights. Each county in Arizona has their own formatting requirements for the recording of quit claim deed forms. If a quit claim deed is to be recorded in Arizona the deed is required to be recorded in the county where the property is located.

Yes, full ownership was transferred over to the child who by the way is in her 40's and employed.

[Jiggers]

I don't think you can depreciate the property at FMV unless it is less than the original basis.

Normally with a gift, the original basis transfers to the person receiving the gift.

[Gary2]

A Quit Claim Deed is one type of real estate deed used in Arizona to transfer real property rights. Each county in Arizona has their own formatting requirements for the recording of quit claim deed forms. If a quit claim deed is to be recorded in Arizona the deed is required to be recorded in the county where the property is located.

Yes, full ownership was transferred over to the child who by the way is in her 40's and employed.

Often when people say "Quit Claim Deed" in these sorts of questions, it's just a red herring. It's a technical term for one particular way of transferring title to real estate. "Quit Claim" means the individual granting it gives up all claims in the property to the buyer.

In MA, for example, registered land uses one type of deed while unregistered land (the majority, in my experience) will always use a quit claim deed, so there's nothing special about it. The distinction between registered and unregistered has to do with the reliability and guarantees of the title, but is generally irrelevant for tax issues.

I suppose that in places that use trust deeds, the use of a quit claim deed could be more relevant (i.e., perhaps implying no mortgage), but I don't remember any examples where saying "quit claim deed" as opposed to "transferred title" would change the answer to a tax question.

[Gary2]

As far as basis goes, Pub. 551 has a nice, concise explanation for gifts, starting on page 8.

Case 1: FMV at time of gift is less than the giver's adjusted basis: Use the giver's adjusted basis for deprecation, while the basis for sale depends on whether there's a gain or loss.

Case 2: FMV at time of gift is equal to or more than the giver's adjusted basis. Use the giver's adjusted basis with an additional adjustment for gift tax (and the gift tax adjustment changes between 1976 and 1977). In this case, the same basis is used for depreciation as for gain/loss.

[taxea]

It's not that complicated. Researching that $1 will take more time than the 35 cent gift tax savings is worth, but I'm pretty sure that the value of the gift is the FMV on date of transfer minus any consideration. The 13K is addressed in the Form 709 and its instructions, so I don't see why there's a question about it.

Whether the documents say gift or sale doesn't really matter. What could matter is whether it's a full transfer to the child, as opposed to a trust or keeping a life estate or partial interest, etc.

I think the question may be asked by someone who is not aware of what the rules are and therefore would have to research what you and I already know.