Quit claim for tax reasons

[robear]

What is the name of your state (only U.S. law)? california

My partner owns the property we live in and has been unemployed for the last 2 years. For the last 2 years I have paid the mortgage solely; our cpa suggested that we prepare a quit claim with joint tenancy so that I could take advantage of the tax benefits, but not record the quit claim, only notarize it and keep it in our files in case any questions come up; are there any risk, will we be automatically reassesed for property value( there is about 30k in equity) and will i have to pay gift tax. This is just for tax reasons, I do not want the property, i just want to claim the beneifts since I have paid the mortgage for the last 2 years.

Thank you,

Robear

[JETX]

Originally Posted by robear

cpa suggested that we prepare a quit claim with joint tenancy so that I could take advantage of the tax benefits, but not record the quit claim, only notarize it and keep it in our files in case any questions come up; are there any risk, will we be automatically reassesed for property value( there is about 30k in equity) and will i have to pay gift tax. This is just for tax reasons, I do not want the property, i just want to claim the beneifts since I have paid the mortgage for the last 2 years.

Your 'CPA' is clearly NOT an attorney, as what he is suggesting has numerous legal risks. Some are:
1) The 'fake' quit-claim will not work as it is not valid unless recorded.
2) The 'fake' quit-claim could be pursued as 'tax fraud'.
3) The 'fake' quit-claim could trigger an 'acceleration clause' (likely in the loan documents) in the mortgage making the full unpaid balance due immediately.
4) The 'fake' quit-claim simply won't work.

Pay your taxes... just like the rest of us.

[tranquility]

I disagree with JETX in specifics, but not in general. A quit claim does not need to be recorded to be valid. It would certainly "work" as to income tax issues. The one being quit claimed to would need to be first to record to protect rights against subsequent purchasers, but the deed would transfer the property.

However, the real issue is the reason for the lack of recordation. I don't think the intent is to make the quit claim "fake", but to prevent reassessment on property taxes and acceleration on the loan. Now, what are the odds of getting caught? Very low. Unless, you get audited and need the deed to prove up ownership. Then, gift tax issues come up. The arraingement with the state to supply information comes up (It would not directly go to the assessor, but the info would be in state databases.) and the potential of the bank finding out comes up.

The CPA seems to have committed an ethical violation in his advice unless he also advised you regarding the gift tax issues and told you to inform the assessor and the bank of the property transfer. Or, if the facts were as JETX surmised, that would be a different ethical violation and crime.

[JETX]

Originally Posted by tranquility

I disagree with JETX in specifics, but not in general. A quit claim does not need to be recorded to be valid.

Of course it has to be recorded. If not, the county doesn't KNOW that the property transfer occurs... and keeps the OFFICIAL record as it is currently. Also, without recording, another (later) quit claim could be made and if IT gets to the courthouse first, that one is validated. I have had that happen before in a case, where a person gave a properly completed (and notarized) quit claim to her son.... who then put in a safety deposit box and never filed it. A few years later, she had a falling out with that son and she did ANOTHER quit claim to her daughter (my client). We filed her quit claim and the property transfer was completed in the records. After finding out about the transfer, the son then tried to file HIS quit claim... but the county clerk ruled (correctly) that the property was no longer in the mothers name to transfer. He filed a lawsuit to assert 'his' claim, but it was easily dismissed.
A quit claim that is NOT properly recorded... is worthless.

It would certainly "work" as to income tax issues. The one being quit claimed to would need to be first to record to protect rights against subsequent purchasers, but the deed would transfer the property.

Nope. See above.
The local taxing authority works VERY closely with the county clerk/registrar (and in fact are one and the same in some jurisdictions). A 'fake' (unrecorded) transfer is just that.... fake and unrecorded.

[LdiJ]

There is also something that has not been addressed:

In order to claim mortgage interest and property taxes you must:

1) Actually pay them,

2) Be legally responsible to pay them.

A quit claim deed gives someone ownership of a property and therefore might work on the property tax side of things, but it doesn't make them legally responsible for the mortgage, therefore they still wouldn't be able to claim the mortgage interest.

[tranquility]

A quit claim deed gives someone ownership of a property and therefore might work on the property tax side of things, but it doesn't make them legally responsible for the mortgage, therefore they still wouldn't be able to claim the mortgage interest.

If a person owns the property, they lose it if they don't pay the mortgage. The courts have generally found that such owners are considered "responsible" for the mortgage and the owner can take the deduction if they pay the interest. See equitable ownership when this is true even if the "owner" is not on the deed.

Of course it has to be recorded.

No. A deed is good when it is signed and delivered. It does not have to be recorded.

If not, the county doesn't KNOW that the property transfer occurs... and keeps the OFFICIAL record as it is currently.

The county is notified by a form different from the recordation. There are different ones to use, depending on the circumstances. You have 45 days to file whether *or not* the deed is recorded.

Also, without recording, another (later) quit claim could be made and if IT gets to the courthouse first, that one is validated.

Not quite. CA is not pure race statute. Only if the later is BFP would it count. That's why I wrote:

The one being quit claimed to would need to be first to record to protect rights against subsequent purchasers, but the deed would transfer the property.

A quit claim that is NOT properly recorded... is worthless.

Nope. First, what state were you talking about? Second, in your case, I'd say son did have a cause of action against mother although could not get the property back from the now owner.

Nope. See above.

You are incorrect as to the income tax issue. A quit claim is valid to transfer property without being recorded.

A 'fake' (unrecorded) transfer is just that.... fake and unrecorded.

Please review deeds and transfer of ownership. Also review the main types of recordation statutes.

[tecate]

Interesting discussion. For property taxes, adding a joint tenant is not a change of ownership until the original transferor (your partner) is no longer a joint tenant. Also, if by partner, you mean registered domestic partner, a transfer to you from him or her is also not a change of ownership.

[tranquility]

Are you sure it's not a "change of ownership"? I would think the second falls under an exemption and that would be a circumstance of using a different notification of transfer form. As to adding a joint owner, I did not know that. Learn something new every day. (If you're having a good day.)

[tecate]

Positive. See Rev and Tax Code Sections 62(f) and 62(p).

[tranquility]

Score, disco. I love citations. They make me happy.