Parent bought a property as their second home over 10 years ago. It was deeded equally as TOD into six shares amongst parent #1, parent #2, adult (non dependent) children #1, #2, #3, #4. The shares were gifted to the children originally upon purchase of the home, so each child holds a $40k cost basis per share. Now 10+ years later, the parents want to put the property into their own revocable living trust and take the adult children's names off the deed. New deed is signed and children receive no payment. The children might or might not be beneficiaries of the revocable trust but they are NOT trustees. What are the implications for each child if the property (per share) is now worth $75K?
1. Because the child disposes the property share to another individual(s) without compensation, does the child have to file IRS form 709 to report a gift of $58K (subtract $17,000 annual exclusion) ?
2. Because both parents are on the trust, can that exclusion be claimed for BOTH parents as gift #1 and gift #2 taking the annual exclusion of 17,000 x 2= $34,000?
3. Isn't the change of deed and transfer of shares to the parent's trust technically considered an uncompensated sale by the child below fair market value? Please explain if the child can claim a capital loss of the original cost basis of the $40K investment? Do I have to make a choice as a loss versus a gift? Or both? Need a good explanation here please of loss vs gift.
Thank you.
