Gift Tax on Home

[MariaMc]

I know I have to file a gift tax return for someone who is giving a residential property to their mother. It appears that the gift value reported would be the full appraised value and the recipient would receive the donor's basis...so if the property is almost worth $1mil, then the donor would use up his lifetime exclusion regardless of the mortgage he holds on the property?

I tried to look this up in the books but no clear answer.

Thanks...

[Roland Slugg]

Yes, the donor's basis carries over, and yes, a gift tax return must be filed declaring the house at its full FMV. If the donee assumes a loan, the amount of the gift is the FMV of the property minus the amount of the loan assumed.

I hope you and the other parties to this transaction have given careful consideration to the wisdom of making such a gift. We don't know all the facts, of course, but many would strongly advise against doing what you have described.

[Edsel]

"Full" FMV

An appraiser normally finds similar property which has been recently sold in order to gage the value of the property. However, in doing so, he obtains the full contract value of these properties.

This means if two similar properties sold for a contract value of $200,000, this is what he would use. However, the owners of those properties would do well to walk away with as much as $185,000, even withstanding any outstanding mortgage.

Deducted from the $200,000 contract value would be some $12,000 for the realtor, $1,000 for an attorney, another $1,000 for the bank cronies who come in and get paid $200 for 5 minutes work, etc. Not the least of which could be $100 "tax information" fee, which often is nothing more than the lender providing a 1098 at the end of the year.

When we speak of the "Full" FMV, does this mean we have to use the full-up contract value from the appraiser, or can we deal with the "real" economics -- meaning the seller would never get all this...

[Roland Slugg]

Unfortunately, the Code and Regulations contain no provisions allowing for an offset or reduction of FMV for selling costs that might be incurred upon the sale of property being valued for Estate or Gift Tax purposes.

[Edsel]

Do they have to?

They contain no provision to reduce the appraised full contract value, but do they contain any provision which insists on using "full-up" value? Unless they are specific about full-up value, I regard codes/regs as license to be reasonable when they are silent.

I know GAAP does not allow full valuation of ANYTHING when there are substantial selling costs, even for those items carried at lower-than-cost-or-market. We often infer GAAP principles when tax statutes are silent.

[Roland Slugg]

The Code and Regs are not silent at all on the subject of valuing property. They say, quite clearly, to use FMV.

GAAP doesn't apply to the tax laws.

[New York Enrolled Agent]

Edsel

Roland is correct. I suggest you read IRC §2512 and Reg §25.2512-1 for more details.

[Lion]

They aren't selling the property

They aren't selling the property; they don't get to deduct sales costs that aren't there. They're giving the property away and use the appropriate regs that have been cited to you.

[taxonomy]

Fmv

... a gift tax return must be filed declaring the house at its full FMV. If the donee assumes a loan, the amount of the gift is the FMV of the property minus the amount of the loan assumed.
.

Is the amount reported on 709 the FMV minus amount of loan assumed, or the full FMV?

[taxonomy]

Fmv

I'm bumping this up as would like clarification. Does the FMV get reported on the 709, or the FMV less assumed loan ? Thanks.

[New York Enrolled Agent]

I believe that the situation you describe - property transfered subject to a mortgage - is considered part gift and part sale. See Reg §25.2512-8. The value of the GIFT portion of the transfer is reported at FMV on Form 709 and is subject to the gift tax provisions. Thus, I think Roland's post is accurate.