Retroactive Gift Tax Filing to Decrease Capital Gains

Forum|Forum|5 years ago
November 12, 2020
1 reply
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Hi,

My dad had a property he bought in 1992 for $120K. He transferred the deed to my brother in 2018 for $1. He did not file a form 709 gift tax return. Our family is about to sell the property for $320K in 2020

However, my mom has -$200K in capital loss for 2020. Can we transfer the deed from my brother to her name, so we can apply the -$200K capital loss to the $200K capital gain from the property sale?

I believe the IRS would want us to substantiate the $120K cost basis for the property being sold, so we would have to show the initial $120K deed transfer from my dad in 1992, and then would we have to retroactively file a form 709 for my dad to my brother, and another form 709 from my brother to my mom?

Just want to make sure I am not doing anything illegal or anything that would trigger an audit. I believe everything I am doing is legitimate, and there are no laws against transferring assets to another person to apply capital losses to capital gains but want to ask an expert before I transfer the deed.

Thank You!

Tax Advice

macuser_22

Alumni - Champ

There are MANY aspects to your post that require detailed explanation before it can be answered. I highly suggest that you seek a tax professional that deals with gifts and property transfer.

Failure to timely file a 709 can lead to stiff penalties (on the giver) that possibly can be abated with proper explanation. There are also questions about the title and if (transfer for $1) is actually a gift of the property (title) or a gift of the equity (money) - which it is can have big tax consequences.

You should take all documentation, titles, agreements, etc; to the professional for evaluation.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

hcjontaxAuthor

Level 2

Thanks - I researched the tax penalty and found if you don't owe a gift tax, there is no penalty for filing late gift tax return. Also, the lifetime gift exemption is $11.68mm, of which my family is far below $1mm.

The transfer should be a gift of property (title) as the lawyer I am meeting with tomorrow is transferring the deed/title to my mother. Nothing was mentioned about the equity.

Let me know if you disagree.

Anonymous_

Level 15

If that were true then nobody would ever file a 709 file. It only applies to the $11 million exemption *if* the 709 is filed. Without the 709 the $11 million exemption does not apply and the tax is due. Ask your attorney.

@macuser_22 wrote:

...Without the 709 the $11 million exemption does not apply and the tax is due.

@macuser_22

Do you have any authority for the proposition stated (in the above quote)?

Treas. Reg. §25.6019-1(f) requires that a gift tax return be filed even if there is no tax due, but I cannot find any authority for the proposition that failing to file a gift tax return serves to eliminate the applicable exclusion amount.