New tax rules make big gifts to family members popular this year. If you made a gift of real estate (or are considering making one) be warned – the IRS is scrutinizing land-transfer records looking for folks who may have made a reporting error.
As The Wall Street Journal reports, the IRS has begun requesting state land-transfer records and checking them against reports of the past few years to find if there are any discrepancies. Congress raised the limit on how much a person can give in a lifetime to $5 million without having to pay gift tax. Still, any time you give one person a gift of more than $13,000, you are supposed to let the IRS know by filing a Form 709. Land transfers can easily exceed the $13,000 limit, which could explain why the IRS is so interested in examining them.
States that have already handed over information on gift-like transactions include Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington and Wisconsin, generating several hundred cases for review, with 12 cases resulting in taxes or penalties. In fact, according to IRS documents, the failure-to-report rate is “extremely high.”
Taxpayers need to be aware that there is no special exception to the rules when making a transfer to a family member. If the property is valued at more than $13,000, a gift-tax return must be filed. Even if the transfer falls within the lifetime exemption amount – currently $5 million – it must be reported.