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  1. #1
    Join Date
    Mar 2009
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    South Carolina
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    Default Gift Tax and Capital Gains Tax Liability

    My question involves real estate located in the State of: New Jersey

    Father, prior to death, transferred title in Mar07 to children as tenants in common with equal division of interest. Property transterred for $1 and right of father to live in the small single family home until death. No mtgs or leins. Deed executed without knowledge or consent of some children and without others.

    Father died in Jan09 and one of children is executor. No written or verbal agreement existed or exists between tenants in common. Home is and will likely remain unoccupied by any of children involved.

    What are tax obligations (how much and when) of all co-owners RE:
    1. Gift tax?
    2. Capital gains tax?

    I am thinking gift tax liability when deed was transferred, and no capital gains liability (if any) until each co-owner disposes of their interest in the property.
    What would be the basis value for capital gains? Property value was never determined during this entire period.

  2. #2
    Join Date
    Mar 2009
    Location
    South Carolina
    Posts
    8

    Default Re: Gift Tax and Capital Gains Tax Liability

    More: Looking at the deed and from what I understand, it is a life estate general warranty deed transferring ownership to seven(7) siblings as tennants in common. It specifically states $1, right of grantor to occupy home for rest of lifetime, and grantor responsibility for property taxes.

  3. #3
    Join Date
    Sep 2005
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    98,846

    Default Re: Gift Tax and Capital Gains Tax Liability

    Gift taxes are owed by the giver, not the recipient. Whether the estate would owe estate taxes depends upon the dollar amounts involved.

    I doubt that there would be any appreciable capital gains tax issue, as the beneficiaries should receive a step up in basis whether they take through the estate or as beneficiaries to a life estate.

    If you wish to try to attack the underlying transfer, consult a lawyer and expect to rack up some fees.

  4. #4
    Join Date
    Mar 2009
    Location
    South Carolina
    Posts
    8

    Default Re: Gift Tax and Capital Gains Tax Liability

    I am looking at the deed. It sounds like a life estate deed, but not sure.
    Life estate with a twist? Here it is:

    "DEED
    This deed is made on [Date] between [Father] of [Address of property] as Grantor, and [Children] as Tenants in Common, of [Address of property] as Grantee."

    "The Grantor grants and conveys, subject to the right to use and occupancy for Grantor, (transfers ownership of) the property described below to the Grantee." For acknoledged receipt of $1.

    "The right to use and occupy reserved by the GRANTOR is the right to use and occupy as his personal residence (but not for rental of other income producing purposes) for the term of his natural life. GRANTOR shall be responsible for [taxes, maintenance, upkeep...] during term of GRANTOR's use and occupancy. GRANTOR shall not be entitled to receive any portion of the proceeds of sale if the property is sold during GRANTOR's lifetime."

    Tax map reference and property description...

    That's it, nothing more.

    I now believe:
    a. Property was a gift in Mar07 and GRANTOR was responsible for any gift taxes.
    b. Tenants in Common became owners in Mar07, not Jan09, and assumed full liability for property at that time.
    c. Capital gains tax basis for Tenants in Common was Fair Market Value in Mar07.
    d. Maybe beside the point now, but I don't see where GRANTOR in this case had exclusive rights to property from Mar07 to Jan09

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