Tax Law

What is the name of your state? Florida. I reside in Florida and own 2 homes. I let my son live in one of my homes and he has lived there for two years. He has paid the real estate taxes on this house, but has not been able to take advantage of the Homestead exemption since the house is in my name and not my principal residence. I would like to put the house in my son's name and was told that a Quit Claim Deed would transfer ownership to him. I am concerned about taxes. Since there will be no money in this transaction - what will happen if my son decides to sell this house in a year from now because it is getting too small for his family. Will he have to pay Capital Gains tax on the entire amount of the house (he will probably not have lived there for 5 years) or only on the difference of what I paid for it and what he sells it for minus any expenses? Anxiously awaiting your reply.

I WOULD LIKE TO PUT THE HOUSE IN MY SON'S NAME AND WAS TOLD THAT A QUIT CLAIM DEED WOULD TRANSFER OWNERSHIP TO HIM.
Yes, a properly filled out quit claim deed would transfer ownership to him.

I AM CONCERNED ABOUT TAXES. SINCE THERE WILL BE NO MONEY IN THIS TRANSACTION –
This would be a gift from you to him. There will be no gift tax because you would be able to exclude $11,000 of the value of the gift from gift tax because of the annual exclusion for every gift. You would be able to exclude the rest of the value under the lifetime exclusion, which is currently $1,000,000.

WHAT WILL HAPPEN IF MY SON DECIDES TO SELL THIS HOUSE IN A YEAR FROM NOW BECAUSE IT IS GETTING TOO SMALL FOR HIS FAMILY. WILL HE HAVE TO PAY CAPITAL GAINS TAX ON THE ENTIRE AMOUNT OF THE HOUSE (HE WILL PROBABLY NOT HAVE LIVED THERE FOR 5 YEARS)
He has to live in the house as him main residence for 2 of the last 5 years before the sale of his home to exclude gain. He also has to have owned the home for 2 of the last 5 years; therefore, if he can hold out for 2 years from the date of your deed to him, there would be no gain. Also, and this gets a little tricky, the period of ownership and the period of use do not have to be the same. He has already lived in the house for 2 years; therefore, he has met that requirement. All he has to do is to own in for 2 years before he sells it. So he could move out and rent the house for two years, then sell it and exclude the gain, except for the lesser of the gain or the amount of depreciation he takes while renting the house.

OR ONLY ON THE DIFFERENCE OF WHAT I PAID FOR IT AND WHAT HE SELLS IT FOR MINUS ANY EXPENSES? ANXIOUSLY AWAITING YOUR REPLY.
If he does sell the house before the 2 years, then he would have a gain equal to the sales price, minus expenses of sale, minus his “basis” for the house. His “basis” in the house would be the same as yours would be because it was a gift. There is one exception. If the fair market value of the property is less than its basis to you at the time the gift is made, then his basis would be that fair market value.

This is in reply to the answer received from Loku to Jjudge re Tax Law. Thank you for your prompt reply to my questions which was greatly appreciated. I still have one more question regarding your statement about the Gift Tax. You stated that since there would be no money in this transaction that it would be a gift from me to my son and that there would be no gift tax because I would be able to exclude $11,000 of the value of the gift from gift tax because of the annual exclusion. The house is valued at $169,000 now. I paid $130,000 two years ago for it. If I am able to exclude $11,000 of the value of the gift, does that mean that I would still be liable for a huge amount of tax on the difference? How would that work? Jjudge

You would be able to exclude the rest of the value under the lifetime exclusion, which is currently $1,000,000.