Gifting Real Estate - Take Advantage of the New Gift Tax Law

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.

Comments

[Jay Raman]

This is an excellent article that I reposted to my property management business Facebook page alerting families transferring rental property portfolios. Real estate investors who want to pass portfolios to family members need to evaluate their tax planning, so this is a excellent alert. Thank you!

[Jay Raman]

Also, the for things like real estate rental portfolios, there maybe benefits if the valuation is low to gift it now versus waiting to pass it through a will or other estate planning tools since the value may go up and eat into the estate tax or gift tax limits. Would you agree with that assessment?

[David Parker, Esq.]

Exactly right, between the high gift tax exemption ($5 million) and the low real estate values, its a great time to gift assets especially real estate.