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.

macuser_22

Alumni - Champ

@macuser_22 wrote:
Then what is the point (or purpose) of the 709 at all if it can be simply ignored with no tax or penalty. Are you suggesting that it can be ignored since it makes no difference?

I am simply suggesting that a penalty cannot be imposed without statutory authority.

You appear to be arguing that a penalty can be imposed but have not yet cited a Code section that imposes a penalty other than one that is based upon tax due.

You also stated that the lifetime exclusion does not apply unless a 709 is filed (and tax is due as a result) but there is absolutely no authority (that I can find) for that proposition.

ALL gifts are taxable to the giver - §2503(a).

Only the first $10,000 ($15,000 now adjusted for inflation) is excluded from the tax §2503(b).

The tax imposed is defined in §2001.

However, you can get a "credit" for the amount of the gift tax that is applied to the lifetime exemption (not exclusion - only the first $15,000 is excluded) §2505 and other related sections. You get the credit by filing the 709 form that applies the taxable gift to the credit.

Filing the 709 late to get the credit can result in a penalty based on the tax imposed by §2001.

**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.**