While it is unlikely that you will have to pay any actual gift taxes
because of this action, you will almost certainly have to file a
federal Form 709 (Gift and Estate Tax Return). California has no
state-level gift tax reporting or form required, so there is no
obligation to file such tax forms to the state. But
there is a federal gift reporting obligation.
That said, you
should be able to learn more of what you need to know about Form 709 and gift taxes by
reading the following detailed AnswerXchange post and related discussion:
https://ttlc.intuit.com/questions/3878767-joint-tenancy-and-gift-tax-question
Those same basic principles (and the $14,000 annual gift
exclusion described therein) will be directly applicable to your own
situation, at least with respect to the transfer of real estate property ownership
interest from one brother to another.
One obvious difference from that other taxpayer's situation though is that you and your other (prior owner) brother will both have a Form 709 to each complete, for the gift of property interest to your third brother.
A second difference is that, if you structured the real estate transaction in such a way that both your third brother and his wife are joint owners on the deed, then you can take advantage of what is known as "gift-splitting" (which is described in the Form 709 instructions). In that case, you and your gifting brother can each exclude ($14,000 + $14,000 😃 $28,000 from your respective Form 709 gift amount.
The tax theory behind this is that you are giving $14,000 to your third brother and then a separate $14,000 to his wife. If each gifting brother reports his gift of equity in this manner, then ($28,000 x 2 😃 $56,000 can be said, in total, to have passed to the third brother and his wife free of gift tax implications.
Please know that Form
709 is not available in any version of TurboTax, and that you would
either need to fill out (and file) this form manually yourself; or you
would need to hire a professional local tax preparer to do it for you.
In fact, because of the greater complexity involved with more than one gifting person on the same property, and the fact that your brother is married (and may thus be eligible for gift splitting), you would be well-advised to seek professional tax assistance with Form 709. A local CPA, Enrolled Agent, or attorney should be able to help you (and your gifting brother) for a reasonable flat rate fee, if you shop around.
Thank you for asking this important question.
