Today TaxMama hears from Richard in the TaxQuips Forum who is generous to his son. “My Son retired from the Army and moved into a house that is on a small farm I inherited. He wanted to make improvements to the house and didn’t want to wait until we passed on to the happy “hunting ground” in the sky to get the property in his name. So we quitclaimed it to him. How do we report this and what value(s) do we use?”
Dear Richard,
How good of you to give the farm to your son. There’s a lot of money at stake, so be sure you do this properly. Learn the laws and limits relating to gift taxes – and estate taxes.
The IRS gift tax form is Form 709. You and your wife each need to file the form, if you both owned the farm.
There are two exclusion from the gift taxes. One is an annual amount; the other is a lifetime amount. The annual amount is $13,000 per person per year. Not $15,000. You and your wife may each make a gift of that amount to your son, his wife, his children, or anyone else. However, remember, this is the TOTAL gift tax exclusion for the year -including birthdays, graduations, holiday gifts, etc.
The other is the lifetime limit – which is $5,000,000 per person. In other words – you and your wife are each entitled to gift away up to $5 million over and above the annual limit.
What value do you use? Gifts are passed on to the recipient using your basis. So whatever the tax basis was when you inherited it will be his basis. PLUS any gift taxes paid. Which you will probably not have to pay. However, on the gift tax return, you will report BOTH your basis and the fair market value at the date of the gift. You will need a formal, written appraisal to attach to the gift tax return.
Please work this out with a tax professional in order to get this done properly. OK? It’s much more complicated than I can explain in just a few words, here. And be sure to give a copy of the returns to your son so he has the details for his own records, in case he ever sells the property.
And remember, you can find answers to all kinds of questions about making large gifts and other tax issues, free. Where? Where else? At www.TaxMama.com.
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