Quitclaim Deed

[peggysioux]

Taxpayer had a adult son who owned a home with no mortgage. Adjust son got into drugs and basically took a downward spiral, so in 2000, parents talked son into quitclaiming house into parents' name so that he would not get into some trouble and lose his house. No gift tax return was filed at that time; they just thought they were hanging onto it until son got his act together. In 2006, son finally did get it together and parent's quitclaimed house back to son. FMV of house in 2006 is $400,000. Parent's also rented house out from 2000 to 2005 and claimed $40,000 of depreciation. Being home truly never belonged to parents (meaning they never purchased house), would the IRS still deem this transfer back to son as a gift?

I did not do any of the previous tax returns and the parents are in their late 70's; they just thought they were helping their child.

[Gretel]

I'll try. From your post it sounds like they (or the prior accountant) want to have the cake and eat it too. If it was a legal transfer, then they can rent the house, take depreciation and gift it back to son.

If it wasn't a legal transfer how could they have claimed depreciation?

[peggysioux]

I don't think

they legally should have taken the depreciation. However, they did take depreciation; so now that it is in the clean-up stage; would the IRS deem a gift tax return needs to be filed. I think you are correct; they wanted their cake and eat it too!!!! However, they were truly just trying to keep son from losing house during his difficult time. I am just not sure how to handle??????

[Gretel]

Yes, IRS expects gift tax return. If parents were on title it their property. If there were not on title prior years tax returns need to be amended.