Q: What are the tax implications of a tenant in common gifting their 50% interest to the other 50% owner?
50/50 unmarried tenants in common on residential property in Riverside, California. Tenant A wants to gift 50% interest so Tenant B is the sole owner on the title. What's the best way to go about this (quit claim deed?) and tax implications?
A:
When a tenant in common wishes to gift their 50% interest in a residential property to the other tenant, ensuring the transfer is executed correctly is crucial. In California, one common method to transfer such an interest is through a quit claim deed. This document will effectively transfer the interest of Tenant A to Tenant B, removing Tenant A's name from the title and making Tenant B the sole owner.
The tax implications of this transfer can be significant. For federal tax purposes, if the value of the gift exceeds the annual exclusion amount ($16,000 for 2023), Tenant A is required to file a gift tax return using Form 709. However, they may not necessarily owe gift tax due to the lifetime estate and gift tax exemption, which is significantly higher (over $12 million in 2023). It's important to note that while no tax may be due immediately, the gift could reduce Tenant A's lifetime exemption.
On a state level, California does not impose a gift tax, but there are still important considerations. The transfer might trigger a reassessment of the property's value for property tax purposes, except under certain exemptions such as transfers between domestic partners or spouses. Therefore, it is advisable to check local regulations and possibly consult with a professional to understand the full extent of these implications and ensure the transfer aligns with your goals.
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