Basis of Land

[tonia2021]

Taxpayer gave his father $1 for some farmland. The $1 was paid to get the quick claim deed prepared. Is the $1 his cost basis when this land is sold? Or was the $1 just a formality and does the taxpayer then use his fathers basis of $14000?

[Lion]

The latter, and father files a gift tax return.

[Koss]

Real Property

I think are you referring to a quit claim deed.

The boilerplate language of deeds often reads something like:

"For the sum of $10.00 and other good and valuable consideration, John Q. Smith an unmarried individual, does hereby sell, transfer, bargain, and convey to Andrew E. Jones, the following described real property..."

This is done for many reasons, which vary from state to state, and vary historically as well. This language is not always necessary. But some lawyers put it in anyway, and that can lead to confusion.

Sometimes a deed will have this type of language even when the transfer is a regular arms-length sale, at the full fair market value. The idea is that the deed does not have to state the purchase price in order to be a valid conveyance. The purchase price is usually available in other public records, such as county transfer tax forms. When it is a genuine sale, it is not easy to hide the purchase price from the public record. In many states, it is impossible to shield this information. But it doesn't have to be in the deed, so many lawyers like to leave it out.

Taking this reasoning one step further, the deed also does not have to express whether the transfer is a gift. Once again, that information can often be found in some other document, but if the transferor, or the attorney preparing the deed, doesn't want that information in the deed, it doesn't have to be there.

I think you should treat your client's transaction as a gift. The price of $1.00 is purely symbolic, or, as you put it, a formality. The price lacks economic substance. If the issue were ever presented to a court, the court would likely rule that it was a gift.

BMK