Columbia, MO asked in Tax Law for Kansas

Q: if my sister quit claims me a property that i have lived in since purchased but she is currently only one on deed. Home

if my sister quit claims me a property that i have lived in since purchased but she is currently only one on deed. Home purchased for 145,000 and now worth 240,000. if I live in it for 2 + more years once deeded it seems i can avoid capital gains tax. My question is how much taxes will she pay with the gift. She has never gifted anything before. Per google he gift tax imposes a tax on large gifts, preventing massive transfers of wealth without any tax implications. It is a transfer tax, not an income tax. Ordinary monetary and property gifts are unlikely to be impacted by this tax, since the yearly limit for 2024 is $18,000 per giver per recipient. When you surpass the annual threshold, you must file IRS Form 709 with your return declaring the size of the gift. But even that doesn’t mean you’ll be taxed on it. Instead, a gift is taxed only after you exceed your lifetime estate and gift exemption, which in 2024 is $13.61 million for individuals

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1 Lawyer Answer
James L. Arrasmith
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  • Tax Law Lawyer
  • Sacramento, CA

A: Based on the information you provided, here's how the gift tax would likely apply in your situation:

1. Yearly gift tax exclusion: In 2024, your sister can gift you up to $18,000 without having to report the gift to the IRS or pay any gift tax.

2. Lifetime gift tax exemption: If the value of the gift exceeds $18,000, your sister will need to file IRS Form 709 to report the gift. However, she likely won't owe any gift tax immediately because the excess amount will count against her lifetime gift and estate tax exemption, which is $13.61 million in 2024.

3. Gift value: The gift's value is the property's fair market value minus any consideration (payment) you provide in return. If you've been paying rent, property taxes, or other expenses, those might be considered as partial consideration, reducing the gift's taxable value.

4. Capital gains tax: If you live in the property as your primary residence for at least two years after receiving the deed, you may qualify for the primary residence capital gains tax exclusion when you sell the property. This exclusion allows you to avoid paying capital gains tax on the first $250,000 of gain (or $500,000 if you're married and filing jointly).

In summary, your sister likely won't owe any gift tax on the transfer unless she has already used up a significant portion of her lifetime gift and estate tax exemption. However, she will need to report the gift on IRS Form 709 if it exceeds the annual exclusion amount. As always, it's best to consult with a tax professional or estate planning attorney to ensure compliance with all applicable laws and to discuss the specific details of your situation.

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