estate taxes, and liability

[wreckbuilder]

What is the name of your state?Arkansas

My mother is in the process of selling her home, and property. She is wanting to divide the money from the sell to her children. She is 87 years old. Is there a limit to how much she can give each child with out having any tax burden on either party?
If she divides the money now, and has to go into an assisted living facility, what would Medicare pay, and would there be a penlty for her giving away her money?

 

[Primardie]

Gift Tax by Elder

I too have the same question. My mother and brother gifted the property to me but in reality I was supposed to be holding only. Turns out that my mother was supposed to pay the gifting tax by April 15 or pay a penalty. Apparently, the giver pays the tax, not the reciever. She will now have to pay the taxes on the value ($54,000) minus the $11,000 (in Texas) allowable as a gift to one person. That means that each, my bother and mother each can give me a gift of $11,000 X2 = $22,000 and they pay gifting taxes on the balance divided by two. I believe it's 20%. Now, my mother gets medicaid, medicare and SSI and turns out that there is something in the Elder Law Handbook that states that the property cannot be given away or sold three years prior to getting medicaid or government aid or something like that. It does not expand as to what will happen if she does. I'm looking for an Elder Law Attorney to help me with this.

 

[anteater]

Just to clarify some:

1) Any person can give $11,000 annually to as many people as they wish without any tax consequences -- no tax due, no reporting, nothing. The $11K per year is not state-dependent.

2) Each person has a lifetime "gift tax credit" to use -- I think that it is still $1 million. Gifts to any one person greater than $11K in one year are counted against this credit. Until that lifetime credit is used up, there is no gift tax due.

3) Therefore, a person gifting more than $11K to any other one person in any one year is required to file a gift tax return. But it is unlikely that any actual gift tax will need to be paid.


In reality, unless you are dealing with someone with a very large potential estate who does a lot of gifting, the gift tax is a non-issue other than the requirement to file the return. (And I often wonder how many people who should be filing a gift tax return actually do it.)

 

[Primardie]

"In reality, unless you are dealing with someone with a very large potential estate who does a lot of gifting, the gift tax is a non-issue other than the requirement to file the return. (And I often wonder how many people who should be filing a gift tax return actually do it.)"

Anteater,

What do you mean? Do you mean that my mother (elderly receiving SSI/Medicaid/Medicare) and brother do not have to pay gifting taxes for transferring the property to my name. On the lien they put "gift" instead of transfer. The lien was under both their names. I'm a bit confused because I was told I could NOT sell the property without first having my brother and mother pay gifting taxes to clear the property because later on the government was going to investigate and then I they would owe back taxes plus interest and if they did not pay, the new owners were liable and could turn around and sue us. What do you mean by "other than the requirement to file the return"?

 

[anteater]

"In reality, unless you are dealing with someone with a very large potential estate who does a lot of gifting, the gift tax is a non-issue other than the requirement to file the return. (And I often wonder how many people who should be filing a gift tax return actually do it.)"

Anteater,

What do you mean? Do you mean that my mother (elderly receiving SSI/Medicaid/Medicare) and brother do not have to pay gifting taxes for transferring the property to my name. On the lien they put "gift" instead of transfer. The lien was under both their names. I'm a bit confused because I was told I could NOT sell the property without first having my brother and mother pay gifting taxes to clear the property because later on the government was going to investigate and then I they would owe back taxes plus interest and if they did not pay, the new owners were liable and could turn around and sue us. What do you mean by "other than the requirement to file the return"?

Whoa, I think that there are two separate issues getting mixed together here: 1) gifts and gift taxes, and 2) gifts and Medicaid eligibility.

In brief, relating to the gift tax:
a) Any person who gives gifts greater than $11,000 to any other one individual in one year is required to file a gift tax return, Form 709, which would show the difference between the amount gifted and the $11,000 annual exclusion.

b) Each person has a $1,000,000 lifetime gift amount exclusion for the cumulative gift amounts that are greater than the $11,000 annual exclusion. Only when that $1,000,000 lifetime exclusion is used up does that person have to begin paying the gift tax.

c) Unless you have left a lot out and mother and/or brother have made some other very large gifts in their lifetimes, there is no actual gift tax that will have to be paid. If the transfer to you occurred in 2004, the filing of the Form 709 may be late and there could be some penalty for filing late. I don't know what the penalty might be, but, since there is no tax due, I suspect that any decent tax preparer or Enrolled Agent could manage to get any penalty waived. If you want to do a quick read:

http://www.irs.gov/publications/p950/ar01.html


Your talk about Medicaid and liens leads me to conclude that mother is receiving Medicaid assistance and Medicaid has already placed a lien on the property. Is that right? I am not real conversant in Medicaid rules. And. since each state has its own set of rules for eligibility, it becomes more confusing. For that subject, I would say that you are right in consulting with an Elder Law attorney. But, that is a separate issue from gift taxes.

 

[Primardie]

Filing of Form 709

Wow!! Now my mother and brother are really in trouble. I checked the name transfer and it was filed in 2004 for 2003. My mother is 68 years old and has never filed any kind of tax return in her life-time. My brother, a carpenter, never does his own return but had no idea that there was any kind of gift tax owed because in reality, the property has never really been his but my mother's just like the transfer to me is only because she feels that if something were to happen to her that she wanted to make sure the property was under my name.

I am very concerned because I had no earthly idea about gift taxes until a friend mentioned it casually because SHE was having to pay taxes over some money her siblings and she received due to a property they sold after their parents both died. Apparently they split the monies and she claims that of the $3,500 she was given for the sale of the property....she had to pay almost half in taxes. I know that this issue is about something else but what? I wonder. Why would someone have to pay so much in taxes after the sale of a property. She indicated that the government does not care if a person does not know about the law and that I had better pay.
Any assistance would be greatly appreciated.

Thank you for all your help.
Primardie

 

[anteater]

Wow!! Now my mother and brother are really in trouble. I checked the name transfer and it was filed in 2004 for 2003. My mother is 68 years old and has never filed any kind of tax return in her life-time. My brother, a carpenter, never does his own return but had no idea that there was any kind of gift tax owed because in reality, the property has never really been his but my mother's just like the transfer to me is only because she feels that if something were to happen to her that she wanted to make sure the property was under my name. Primardie

Get off the "gift tax owed" kick! Unless mother and brother have a lot more wealth than you are indicating and have been making megabucks gifts, then there is not going to be any gift tax owed.

Of course, they should file Form 709. But let's just say........ my bet is that, if not filing Form 709 when it should be filed were a criminal offense punishable by a stretch in prison, then this country likely would have to double its prison capacity.

I am very concerned because I had no earthly idea about gift taxes until a friend mentioned it casually because SHE was having to pay taxes over some money her siblings and she received due to a property they sold after their parents both died. Apparently they split the monies and she claims that of the $3,500 she was given for the sale of the property....she had to pay almost half in taxes. I know that this issue is about something else but what? I wonder. Why would someone have to pay so much in taxes after the sale of a property. She indicated that the government does not care if a person does not know about the law and that I had better pay.
Any assistance would be greatly appreciated.

No idea how your friend ended up owing half of the proceeds from a sale of inherited property in taxes. And I would wager that she has no idea what she is talking about. Stop listening to your friends and go to a tax preparer with all your facts. Maybe whoever does your brother's taxes.

 

[Primardie]

2003 form

Very late tax return. Thank you for the help. Really appreciate it. Will have to check into whether or not there will be penalties and also on how to get a waiver. I had no idea about the gift taxes and neither did my mother or brother.

Sorry for any inconvenience. I have to understand all of this so that I can fill out the proper forms. I will get someone to check my work.

Primardie

 

[Primardie]

Sold the supposed gift, now what?

"In reality, unless you are dealing with someone with a very large potential estate who does a lot of gifting, the gift tax is a non-issue other than the requirement to file the return. (And I often wonder how many people who should be filing a gift tax return actually do it.)"

Anteater,
We filled out the gifting form 709 and sent form to the IRS. Thank you.

I now have a different situation, but it's related to the gifted property. I sold it this last summer. It was valued at $53,500 when it was gifted to me in 2002 by my mother who is still alive. I sold it for $60,000. I was told that I have to treat it like an inheritance and pay the gov't 15 to 20 percent in taxes on the entire amount since I paid nothing for it. This does not sound right and that I had to claim the whole thing as a capital gain. I am so confused If my mother is still alive am I supposed to treat this as a gift from her or an inheritance? I use taxact to fill out my income tax return and it does not address this situation. Any help will be greatly appreciated.

 

[LdiJ]

"In reality, unless you are dealing with someone with a very large potential estate who does a lot of gifting, the gift tax is a non-issue other than the requirement to file the return. (And I often wonder how many people who should be filing a gift tax return actually do it.)"

Anteater,
We filled out the gifting form 709 and sent form to the IRS. Thank you.

I now have a different situation, but it's related to the gifted property. I sold it this last summer. It was valued at $53,500 when it was gifted to me in 2002 by my mother who is still alive. I sold it for $60,000. I was told that I have to treat it like an inheritance and pay the gov't 15 to 20 percent in taxes on the entire amount since I paid nothing for it. This does not sound right and that I had to claim the whole thing as a capital gain. I am so confused If my mother is still alive am I supposed to treat this as a gift from her or an inheritance? I use taxact to fill out my income tax return and it does not address this situation. Any help will be greatly appreciated.

ARG! I hope you listen better this time than you did the last time.....and stop getting tax advice from whatever source you are currently receiving it.

When property is sold you pay capital gains taxes on the GAIN. The gain is the difference between the selling price and your basis.

In this case, your basis would be the price your mother (or mother and father) paid for the property, plus any improvements made to the property.

So...as an example, lets say that your parents paid 30k for the property plus spent another 10k in improvements. That gives you a basis of 40k. If you sold the property for 60k, then your gain is 20k. You would pay capital gains taxes on 20k......which would be either 5%, 15% or your regular tax bracket, depending on your other taxable income.

If your parents paid 60k for the property and put 10k in improvements into the property, then you would NOT have a capital gain at all....you would have a capital loss.

 

[anteater]

I now have a different situation, but it's related to the gifted property. I sold it this last summer. It was valued at $53,500 when it was gifted to me in 2002 by my mother who is still alive. I sold it for $60,000. I was told that I have to treat it like an inheritance and pay the gov't 15 to 20 percent in taxes on the entire amount since I paid nothing for it. This does not sound right and that I had to claim the whole thing as a capital gain. I am so confused If my mother is still alive am I supposed to treat this as a gift from her or an inheritance? I use taxact to fill out my income tax return and it does not address this situation. Any help will be greatly appreciated.

I may regret asking, but what happened to brother? I thought that he was also a part owner.

Nevertheless, it is a gift and not an inheritance. You would probably be better off if it had eventually been inherited.

Your capital gain is the difference between the net sales price minus your adjusted cost basis. Since it was a gift, your adjusted cost basis is the adjusted cost basis of those who gifted the property to you. Adjusted cost basis is essentially what the giftors paid for the property plus the cost of any improvements.

(Fair market value at the time of the gift would only be relevant if the fair market value was less than the giftors' adjusted cost basis. I am guessing that is unlikely.)

So, to establish your adjusted cost basis, you have some digging to do. You need to find your mother's adjusted cost basis. Then you can determine what your capital gain is. For more info, you can take a look at these IRS Pubs:

http://www.irs.gov/pub/irs-pdf/p551.pdf (Page 8, in particular)
http://www.irs.gov/pub/irs-pdf/p544.pdf

Did you live in the house as your primary residence? You might be able to take advantage of the primary residence capital gain exclusion. Take a look at this IRS Pub:
http://www.irs.gov/pub/irs-pdf/p523.pdf (Beginning on Page 9)

 

[anteater]

ARG! I hope you listen better this time than you did the last time.....and stop getting tax advice from whatever source you are currently receiving it.

When property is sold you pay capital gains taxes on the GAIN. The gain is the difference between the selling price and your basis.

In this case, your basis would be the price your mother (or mother and father) paid for the property, plus any improvements made to the property.

So...as an example, lets say that your parents paid 30k for the property plus spent another 10k in improvements. That gives you a basis of 40k. If you sold the property for 60k, then your gain is 20k. You would pay capital gains taxes on 20k......which would be either 5%, 15% or your regular tax bracket, depending on your other taxable income.

If your parents paid 60k for the property and put 10k in improvements into the property, then you would NOT have a capital gain at all....you would have a capital loss.

Dang, you snuck in ahead of me. I was getting the links to the Pubs.

Not to beat up on Primardie in particular, but I would add that his is what happens when relatives start slinging assets around without getting competent tax/elder law advice beforehand.

 

[Primardie]

Got it....

I know what you mean. People think they know something so they try to scare others with their BS. I mean, now I know it's BS because they want to seem important, like they know everything. Me, I knew nothing before but now I know better. Two people, who sold their property who paid taxes on the gain and who expressed they paid a WHOLE lot of money made the comments to me. My brother, his name was on the deed just in case something happened to my mother but the REAL owner has always been my mother. I did not turn around and purchase a house for my mother, I had previously purchased a house and had a mortgage payment. I took my mother out of the place where she was living because the condition she was living in was really bad. I moved her to a house within the city limits to keep an eye on her because she is always getting sick. She does not drive and she insists on living alone. I had a $38,000 mortgage that I paid out with the money I got from the property I sold but I kept the house under my name. I used the rest of the money to pay back taxes on the property sold and I fixed the house she is currently living in. There was no money left after installing cement floors, making the house my mother lives in now whee-chair ready and so on and so forth. I am just glad I don't have a mortgage anymore. So now I have to file on the gains...got it!! Thank you SO VERY much. It's ok if you get frustrated with me, I am new when it comes to real estate. It takes me a little while because I am not familiar with the law when it pertains to buying and selling property. I am, though, learning a lot.