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Level 2

Solved

Joint Tenancy and Gift Tax question

Forum|Forum|7 years ago
June 4, 2019
4 replies
0 views

My sibling and I acquired a property in California in 2016, with joint tenancy and right of survivorship. My sibling is the primary residing person. We did a total downpayment of 80 K with me doing 20K and sibling doing 60K. Rest of the property amount paid through mortgage. Does any of us have to file a gift tax return and if yes for what amount the gift tax return is to be filed?

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The answer to your question is that you do have some gift tax consequences related to this transaction, and that your sibling should file a Form 709 (federal gift tax return), reporting a total of $6,000 as a gift made to you. Please allow us to explain how we arrive that that figure.

Under estate law, joint tenancy is a special type of ownership by two or more persons of the same property. The individuals, who are called joint tenants, share co-equal ownership of the property and have equal, undivided, rights to keep or dispose of the property. Joint tenancy also creates a Right of Survivorship. This right provides that if any of the joint tenants dies, the remainder of the property is transferred to the survivors.

Treas. Reg. § 25.2511-1(h)(5)) explains that the transfer of money or property to another party (related to the taxpayer or not) constitutes a gift.

Because joint tenancy creates co-equal owners in the property, and there are exactly two of you, each of you essentially now own a 50% equity interest in the property. With an initial total cost (down payment) of $80,000, that means you each made an initial $40,000 as an equity investment.

However, you indicate that you contributed $20,000 of this $80,000 total amount, leaving some $20,000 that should be considered an effective "gift" to you on the part of your sibling, in order to equalize the investment at 50% / 50%.

That said, each taxpayer is allowed to give $14,000 per year (in 2016) to another person completely free of gift tax implications. Thus, $20,000 - $14,000 = $6,000 is the derived amount of the gift, to you, that becomes a reportable item on the part of your sibling.

Please keep in mind that this $6,000 is not actually a taxable sum in itself, as the $6,000 will simply count toward reducing you sibling's lifetime Unified Gift and Estate Tax allowance (which in 2016 is nearly $5.5 million). Nevertheless, there is still a reporting obligation, even in the absence of any taxes due, that legally should be met by filing Form 709.

Finally, please note that the gift tax return, Form 709, is not supported in the TurboTax software; and that your sibling would need to prepare it independently of TurboTax.

Thank you for asking this important question.

A

Anonymous

Answer

The answer to your question is that you do have some gift tax consequences related to this transaction, and that your sibling should file a Form 709 (federal gift tax return), reporting a total of $6,000 as a gift made to you. Please allow us to explain how we arrive that that figure.

Under estate law, joint tenancy is a special type of ownership by two or more persons of the same property. The individuals, who are called joint tenants, share co-equal ownership of the property and have equal, undivided, rights to keep or dispose of the property. Joint tenancy also creates a Right of Survivorship. This right provides that if any of the joint tenants dies, the remainder of the property is transferred to the survivors.

Treas. Reg. § 25.2511-1(h)(5)) explains that the transfer of money or property to another party (related to the taxpayer or not) constitutes a gift.

Because joint tenancy creates co-equal owners in the property, and there are exactly two of you, each of you essentially now own a 50% equity interest in the property. With an initial total cost (down payment) of $80,000, that means you each made an initial $40,000 as an equity investment.

However, you indicate that you contributed $20,000 of this $80,000 total amount, leaving some $20,000 that should be considered an effective "gift" to you on the part of your sibling, in order to equalize the investment at 50% / 50%.

That said, each taxpayer is allowed to give $14,000 per year (in 2016) to another person completely free of gift tax implications. Thus, $20,000 - $14,000 = $6,000 is the derived amount of the gift, to you, that becomes a reportable item on the part of your sibling.

Please keep in mind that this $6,000 is not actually a taxable sum in itself, as the $6,000 will simply count toward reducing you sibling's lifetime Unified Gift and Estate Tax allowance (which in 2016 is nearly $5.5 million). Nevertheless, there is still a reporting obligation, even in the absence of any taxes due, that legally should be met by filing Form 709.

Finally, please note that the gift tax return, Form 709, is not supported in the TurboTax software; and that your sibling would need to prepare it independently of TurboTax.

Thank you for asking this important question.

Level 2

Thanks for the quick reply. Actually the transaction took place in 2015 so we should have filed in 2016. Can we still go ahead and file Form 709 now without penalties? Does the actual value of the property matter at all in this case or is it just the down-payment we made?

Also I have been paying my sibling some money (more than 14K in 2016) and the mortgage repayment is done entirely by my sibling. Can my sibling go ahead and claim the entire Mortgage Interest and Property Tax as deductions?
I will go ahead and file Form 709 for the money I sent to my sibling in excess of 14K. Thank you.

Level 2

Daughter and I purchased a home jointly in 2019 and this is her primary residence. I made the down payment of $45K and she made the mortgage and tax payments. She refinanced the home in 2021 taking my name off the deed/title using a quitclaim deed and no money changed hands. Based on what I have read, my daughter should have filed a 709 claiming a gift to me of $7500 ($22,500-$15,000), right? Moving on to the quitclaim in 2021, do I need to submit a 709 since no money changed hands and if so, is the gift to her 50% of the equity? The house was purchased for $225K and has a fair market value of $260K at the time the house was refinanced.

Level 15

Yes, you would need to file form 709 for the gift tax. You gave the gift to her since your name was taken off the deed, she did not give it to you, so you gave her your interest in the house.

I am not sure where the $15,000 came from. The $22,500 I am assuming is half of the $45,000?

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Level 2

The down payment was $45K which I paid in 2019. My understanding based on earlier replies is that in a joint tenancy (in this instance between me and my daughter) that my daughter should have filed a 709 in 2019 claiming half the down payment ($22,500) as a gift to me. If I gifted my interest (equity) in the home to her through a quitclaim, I would claim 50% of difference between FMV and the purchase price as the gift. Is this correct?

Level 2

Hi,

Same question. I bought a townhome last year to be used by my son while he is in college. It's Joint Tenancy with he and I on the deed. I paid the down payment and am co-signer on the loan. I assume I need to fill out form 709 with the amount showing that he is gifted 50%. When we sell I assume we can do the opposite.

D.R.

Level 15

Since you and your son are Joint Tenants, it would be assumed that each of you contributed 50% to the purchase.

As you paid the down payment in full, yes, the 50% that he would have paid would be a 'gift' to him from you.

Since a Gift Tax Return is filed separately and is not reported on your personal Form 1040, you can download Form 709 from the IRS site and send it in. It doesn't affect your taxable income at all.

When you sell, since both names are on the Deed, you will each report 50% of any Gain (no loss is claimed on sale of a personal residence). However, with the Home Sale Exclusion usually the sale is not even reported on a tax return.

Here's more info on the Gift Tax.

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Level 2

In 2017 my father and I bought my primary residence. The purchase price was $430,000. He put in $200,000 and I put in the remaining $230,000 and I also paid all the costs incurred with owning the house. We are listed as joint tenants on title. The home is my primary residence. It is not, and never has been, my father's primary residence. We are planning to sell the home in 2022 and we anticipate approximately $250,000 in gain. He is willing to gift me all equity in the home, but we're not sure the best way to go about this and any help will be appreciated. Our plan is for him to quit-claim the deed to me, then file a 709 reporting that he gave me a gift of half the value of the sale of the property. Is this okay? Will it cause any trouble with the IRS? We are willing to pay capital gains taxes on his portion of the gain if necessary, but we'd rather not if we don't have to. Are there any other tax implications that we should be aware of? Thank you.

Level 15

You will take your father's basis; he will not have to pay capital gains tax as a result of the gift.

Your father will have to file a 709 to report the fair market value on the date of gift.