Tax Implications for Transferring Real Estate Property Between Family

Transferring ownership of your property to a family member is a fairly straightforward process. It can be achieved in three simple steps:

  1. Sign Property Transfer Deed (a Quit Claim Deed is most often used in these cases).
  2. Notarize the document.
  3. Record document with county.

Of course, certain tax implications and stipulations come with transferring your property. This is especially true via a Quit Claim deed. Our article will outline the necessary steps to ensure a smooth and efficient transfer of property.

Tax Implications

Quit Claim Deed

When transferring property amongst family members or parties with an established relationship, a Quit Claim Deed is often the go-to choice. This means of transfer does not require a lawyer, which makes for a faster process. It is generally used when a property is gifted to the recipient. However, a Quit Claim deed does not provide the new owner with any guarantee that the seller is authorized to sell the property. To avoid any legal issues that may arise from these loose implications, it is recommended that Quit Claim deeds only be used between parties with trusted relationships.

Tax Implications for Property Transfer

Often times there is no monetary exchange between parties in a Quit Claim process. However, one must still be aware of the tax implications involved. If any property tax is owed, it must be paid by the grantor. A title cannot be established until back taxes have been paid. Once ownership of the property has been transferred to the grantee, he/she is now responsible for paying taxes.

When the grantor receives no money for the property, a Gift Tax is imposed. This tax must be paid at tax return time using IRS Form 709. Individuals are allowed up to $13,000 a year in nontaxable gifts. Married couples who share ownership of the gifted property are allowed up to $26,000. Certain exemptions apply, such as cases where the property is being transferred from parent-to-child. A Quit Claim deed is also not taxable when ownership is transferred to spouse. Visit IRS.gov for exceptions to Gift Taxes.

Inheritance Tax

An Inheritance Tax applies to an individual who becomes heir to a property after the owner’s death. This tax is imposed at the state level and varies according to the beneficiary’s relation to the deceased party (children of the deceased will be taxed less than extended family members or close friends). This tax can be avoided if the property is transferred while the grantor is still living, as the property will already be under the grantee’s name at the time of death.

Once the deed has been created, it must be signed by the grantor before a notary public. Some states require the grantee to sign the deed as well. The grantee must then register the deed with the county in order to prove that a legal transfer has taken place. Once that has been done, the process is complete. As initially mentioned the process is fairly simple; however, understanding the possible tax implications that may arise from said process can prevent it from growing into an unnecessarily huge headache.

If you are considering transferring real estate to a family member and are still unclear on how the tax implications might affect you or them, call the accountants at My CPA, PA to discuss further details.

*this is not any legal or tax advise – please consult with our CPAs and//or realtor in regards to your own personal situation

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