the transfer of real estate -- primary residence

[Skate1968]

An older man owned the home that he lived in. He wanted his nephew to have it after he died.

So in 2011, this man, the uncle, signed over the title deed of his home to his nephew.

Then the uncle continued to use the property as his primary residence. He paid the real estate taxes and other expenses related to the property.

The nephew never resided on the property, never received any rental income from it and never visited -- no benefit received.

In 2016, the uncle wished to sell the house and move. So the nephew signed the title deed back over to uncle -- 12/26/16.

My position:

NO gift took place. There was no “delivery” of a gift to the nephew in 2011 nor any other year.

1) So there is no outstanding gift tax owed -- not in 2011 nor in 2016. [no gift tax returns were filed]

2) The uncle qualifies for the primary residence exclusion if he sells property TODAY. He has two years of ownership EFFECTIVELY.

The uncle does NOT need to wait until 12/26/18 to qualify -- he does NOT need to wait two years after title transfer.


Am i right?

And if I am right, is there anything i should do to prevent any problems?

Thanks for reading.


Additional information:

I think that this transferring of the title back and forth was probably stupid. It seems like it’s throwing up a red flag to the IRS for no good reason. But i am unsure of what i should do now, if anything.

In 2011 they estimated the value to be 60,000 when title transferred. In 2016 they estimated 118,000. Values were based on comparable properties in the neighborhood -- property value went up.

If the uncle sells today he will report Nontaxable gain on sale of home -- roughly 100,000. He’ll report all gain as if nephew never owned it. Estimated sale price less cost basis; 125,000 less 25,000.

Neither the uncle nor the nephew has had any title/deed to any other real estate in the past 10 years.

[taxea]

Was the nephew put on the mortgage or just the deed? Was there a written agreement of terms?

[Skate1968]

nephew NOT on mortgage

Was the nephew put on the mortgage or just the deed? Was there a written agreement of terms?

The nephew was NOT put on the mortgage. He was only on the title deed. There was NO written agreement of terms.

thanks for reading and asking

[kathyc2]

On what grounds are you wanting to treat the title transfers as if they never happened, other than the fact that disregarding it leads to a tax advantage?

If the uncle would have gone into long term care, the house (subject to holding period) would not have to be used as an asset before Medicaid kicks in.

Sounds to me like Uncle transferred house to protect from Medicaid rather than leaving to Nephew in will, and now wants to change his mind.

[Burke]

By gifting the property to another party but continuing to live in it (and the donee did not ever have personal use of it), you have an implied Life Estate. It is considered an incomplete gift because the donor retained all the enjoyments of ownership and use. Normally, if the home is subsequently sold while the donor is still living, the cap gains are split between the two parties. Donor would qualify for 121 treatment on his percentage (see IRS tables to compute), and the 2nd party would have to report LTG on his Form 1040 in the year of sale. If sold at a loss, neither party would be able to deduct it. If it was sold after the date of death of the donor, then it would have received stepped-up basis for the donee at original owner's DOD. Now, because it was retitled back to the original owner, you have a complication but essentially he can sell it using 121 if he qualifies. And the donee is out of the picture. You need to do some research on Life Estates. They can get complicated. Normally, that is recorded in the deed at transfer (or should be.) But courts have ruled on the actual facts and circumstances of incidents of ownership.

[Skate1968]

How to treat to the title transfer

Thanks very much for reading and responding, kathyc2.

On what grounds are you wanting to treat the title transfers as if they never happened, other than the fact that disregarding it leads to a tax advantage?

I’m thinking that the transfers should be treated as taxable events OR they should NOT treated as taxable events.

They were gifts OR they were NOT gifts. [they certainly wouldn’t be sales]

“Three elements are essential in determining whether or not a gift has been made: delivery, donative intent, and acceptance by the donee.”

https://legal-dictionary.thefreedictionary.com/gift

I read that that as “Three requirements for a transfer to be a gift.” Delivery, intent and acceptance.

There was no “delivery” of a gift to the nephew in 2011 nor any other year, as I said earlier.

“Delivery” would not occur until the uncle dies -- death -- a gift given upon death as opposed to a gift given during one’s life . So the “INTENT” was for this “DELIVERY” to occur upon death.

DEATH would CAUSE it, “Causa Mortis” gifts are DELIVERED upon death.

Delivery was NOT made IN LIFETIME, not during lifetime, not an “Inter Vivos” gift.

So if there was any gift from uncle it would be a “causa mortis” gift and occur upon death of uncle -- accounted for in the tax year that he died.

Legal terms: http://www.professorbeyer.com/Archiv...erty/Gifts.htm

….Sounds to me like Uncle transferred house to protect from Medicaid rather than leaving to Nephew in will, and now wants to change his mind.

You would know more about Medicaid kicking in than I would. And it might APPEAR that way. The thought never crossed my mind.

But I do know the uncle. And I do not believe he’s that sophisticated.

The uncle said that he wanted to avoid any legal expenses paid to lawyer for transferring ownership of the house after his death.



I used capitalized keywords in an effort to be more clear. I hope I don’t come off as if I’m “shouting” at anyone as if this was a chat room.

[taxea]

If the State has a TOD law on real property it could have been transfered on his death with no attorney, trust, will involved.