Seniors tax implications on a quit claim deed

[dhenzjhen]

Hello,

I bought a property back in 2007 been living with my parents but then I moved out of the house back in 2015. 

I did a quit claim back in December 2021 and transferred the house to my parents.

My question now is that, my parents are now both 67-68 and still working making 85K a year on top of their monthly pension. If they sell the house they are going to have at least 400K in gains.  I am no longer in the (2 years within the last 5 years) range when I did the quit claim, so I am wondering if this gain is a long term gain or short term gain or how would tax implications going to affect them.

Thank you!

[jtax]

The IRC 121 rules would apply to your parents as full owners starting when they obtained full ownership. If they have been living in the property as their principal residence and owning it per IRC 121 they should qualify for the $250k/per person capital gain exclusion. See https://www.law.cornell.edu/uscode/text/26/121

The basis of a property received by a gift is usually the basis of the donor (gift giver). The receiver of the gift is called the donee.

[Exception, if at the time of gift, the fair-market value (FMV) of the property is less than the basis, the donee's basis is the FMV at that time.]

See I.R.C. 1015(a) - https://www.law.cornell.edu/uscode/text/26/1015

The holding period for determining long term vs short term includes the time the donor held the property if the donee's basis is the same as the donor's basis. See I.R.C. 1223(2) - https://www.law.cornell.edu/uscode/text/26/1223

If the value of the gift in 2015 was more than about $14k per donee, then the donor should have filed federal gift tax return on Form 709 (and maybe a state return). If the gift was taxable, the gift tax paid is added to the the basis. But gift tax is rarely paid since it only applies to lifetime gifts over about $11million).

[dhenzjhen]

Hi Jtax,

Thank you for your reply. I just transferred the house to my parents through quit claim deed  can they sell it within 2 months  without any issues  to the IRS soon? 

Thank you!

[Mike9241]

the quit claim was in 2021. that's the date of the gift. the value exceeds $15,000 you need to file a gift tax return for 2021. Turbotax does not do gift tax returns.

[jtax]

Sorry I missed that the deed was just done in 2021.

I don't see (after only a quick glance) how it can work for your parents. But you should consult a provisional tax advisor (CPA, EA, or attorney) to get specific advice taking into account your situation rather than relying on an Internet form for amounts as large as are involved here.

The general rule is in I.R.C. 121(a), which reads:

(a)Exclusion

Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.

Unless there is an exception in the rest of section 121, your parents must both have owned and have used the home for 2 years. Otherwise they don't get the $250k/per person exclusion and will have to pay capital gains.

There is some discussion of the ownership tests in the regulations, but I don't think there is anything that helps you. But you and your advisor should review them. See

https://www.law.cornell.edu/cfr/text/26/1.121-1

[dhenzjhen]

Hi Jtax, 

Thank you so much for the reply.