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TaxPayer10
New Member

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

 
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Opus 17
Level 15

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

You normally don't owe tax for giving a gift.  However, if the gift is more than $14,000 in a year, you must report it to the IRS on a gift tax return.  You have a lifetime gift limit of $5.4 million; after that you would owe tax, and the gift tax return documents your gifts for the IRS to track against your limit.

Your niece will receive your cost basis in the home.  Cost basis is used to calculate any capital gains tax that she owes when she sells it.  If she can't prove a cost basis, the IRS will assess higher taxes against her, so it will be helping her greatly to give her proof of your cost basis.  That is the original cost you paid for the home, plus the value of any permanent renovations and improvements, and minus depreciation you took or could have taken when it was a rental.

You would have no further tax liability as far as the IRS is concerned, but you would likely be personally liable on the mortgage even after you give away the home, until it is paid off or refinanced.  (In other words, I'm sure your niece is a nice person, but she could trash the house and stick you with the bill.)  And the mortgage will stay on your credit report until it is refinanced in her name or paid off.  And giving away the house may be grounds for the mortgage company to demand immediate repayment.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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12 Replies
Opus 17
Level 15

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

You normally don't owe tax for giving a gift.  However, if the gift is more than $14,000 in a year, you must report it to the IRS on a gift tax return.  You have a lifetime gift limit of $5.4 million; after that you would owe tax, and the gift tax return documents your gifts for the IRS to track against your limit.

Your niece will receive your cost basis in the home.  Cost basis is used to calculate any capital gains tax that she owes when she sells it.  If she can't prove a cost basis, the IRS will assess higher taxes against her, so it will be helping her greatly to give her proof of your cost basis.  That is the original cost you paid for the home, plus the value of any permanent renovations and improvements, and minus depreciation you took or could have taken when it was a rental.

You would have no further tax liability as far as the IRS is concerned, but you would likely be personally liable on the mortgage even after you give away the home, until it is paid off or refinanced.  (In other words, I'm sure your niece is a nice person, but she could trash the house and stick you with the bill.)  And the mortgage will stay on your credit report until it is refinanced in her name or paid off.  And giving away the house may be grounds for the mortgage company to demand immediate repayment.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
TaxPayer10
New Member

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

I see... let's say I bought the house for $250K and no improvements.  I gift to my niece.  She sells 2 years later at $500K... do I owe any taxes?  Or what tax does she owe?
Opus 17
Level 15

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

You don't owe anything since it's not your house any more.

Her cost basis would be $250K.  That would mean a capital gain of $250K.  If she lives in the home and uses it as her main residence for at least 2 years, she will probably qualify for the capital gains exclusion meaning the first $250K of gains is tax free.  Any gains over $250K is taxed at the long term rate of 15%.  If she sells in less than 2 years, she would owe tax on the full amount of the gain unless she qualified for one of the partial hardship exclusions.  Or if she is married filing jointly she may be able to exclude more than $250K of the gain.  It really depends on her circumstances.  <a rel="nofollow" target="_blank" href="https://www.irs.gov/uac/newsroom/top-ten-tax-facts-if-you-sell-your-home">https://www.irs.gov/uac/ne...>
*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
SweetieJean
Level 15

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

@Opus 17  User said this:
"I had purchased home as a rental (2nd) home, rented it out for two years, then lived in it for last year and recently moved out since I want to gift to my niece."
But it's not clear if OP ever converted it back to personal use on his 2015 return.
TaxPayer10
New Member

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

2013 & 2014 Rental.  2015 converted to personal use, til moving out in 2016.  Will gift in 2017.  No tax as a gifter, and no tax if sold after niece lives in it for 2 years, correct?
Opus 17
Level 15

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

If the  niece lives there at least 2 years she can shelter 250k of gain or 500k of gain if married, and if it has been at least 2 years since she sold a previous home.  If the gain is more than 250k or 500k there will be some tax owed.
*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
SweetieJean
Level 15

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

Gifting the home to her is not taxable to her, but may trigger the Due On Sale clause in your mortgage agreement.  Did you ever rent this house out?

TaxPayer10
New Member

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

Yes, previously, but not in the last year.
SweetieJean
Level 15

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

For the year you stopped renting it, did you do the following:
In theTurbotax screen "Do any of These Situations apply to This Property?"
"Do any of these situations apply?" where you can indicate that you "converted the property from rental to personal use" and then continue to asset summary screen to place the date taken out of service.
TaxPayer10
New Member

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

Hm... so how would the IRS calculate my tax owed?  How much would I owe if I rented for about two years, but last year I lived in it, but moved out recently and want to gift it to my niece next year?
SweetieJean
Level 15

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

Did you also live in it before you started renting it out?
TaxPayer10
New Member

What are some tax implications if I want to gift a house I have mortgage on to my niece? Do I have to pay taxes? Is there any liability with me after gifiting?

No, I had purchased home as a rental (2nd) home, rented it out for two years, then lived in it for last year and recently moved out since I want to gift to my niece.
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