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Newly Registered Domestic Partners: gift tax

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KenKW

New member
#1
What is the name of your state? California.

My partner and I registered our domestic partnership with the Secretary of California on September 10, 2018.

I sold a house on August 20, 2018 titled as a single man and I have been single up until registering. With the proceeds of the sale, my partner and I bought another house on October 1, 2018, using the proceeds from the sale of my other property ($500,000), and a small mortgage. The new house is titled as community property as domestic partners with right of survivorship. Both houses are located in California.

Now I get around to doing my taxes. I find that half of the downpayment for the new home is considered a gift to my partner according to the IRS, since we must file as single people. I am trying to get a sense of my options to not have to file a gift tax claim, if there are any.
 
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xylene

Senior Member
#2
You have no options. You can't go back and get married in 2018.

You need to file a gift tax return.

That does not mean you owe any tax.
 

KenKW

New member
#3
I am beginning to realize the legal benefits of marriage, and all the legal work that couples needed before same-sex marriage. An idea I had is to make a post "nuptual" agreement that says the proceeds from the sale of the house is transmuted to community property, and that would keep the IRS from classifying the money I put towards the downpayment as a gift. But, I also wonder if that is worthwhile.
 

LdiJ

Senior Member
#4
What is the name of your state? California.

My partner and I registered our domestic partnership with the Secretary of California on September 10, 2018.

I sold a house on August 20, 2018 titled as a single man and I have been single up until registering. With the proceeds of the sale, my partner and I bought another house on October 1, 2018, using the proceeds from the sale of my other property ($500,000), and a small mortgage. The new house is titled as community property as domestic partners with right of survivorship. Both houses are located in California.

Now I get around to doing my taxes. I find that half of the downpayment for the new home is considered a gift to my partner according to the IRS, since we must file as single people. I am trying to get a sense of my options to not have to file a gift tax claim, if there are any.
First, you do not understand how gift taxes work. Yes, a 250k "gift" would require you to file a gift tax return. However, there would be no taxes due on that gift unless you have already exceeded your lifetime exclusion for gifting (over 11 million at this point) So, all that you have done is created a need to do some paperwork. Its a bit of a hassle, but that is all that it is. It also has absolutely nothing to do with regular income taxes.

However, you should also get a consult with a local tax attorney to make sure that it really constitutes a gift at this point. I suggest that only due to the domestic partner arrangement. I would not normally recommend a tax attorney (a CPA or EA normally would be my recommendation) but with the amount of money involved, it wouldn't hurt.
 

xylene

Senior Member
#5
You have no community property Your home's 500,000 is equity is not community property under federal tax law, as you are not married.

This gift of equity occurred in 2018.

You will need to file a gift tax return.

If you had gotten married at an time in 2018, even after this you would not have this problem.

Given the amounts involved, I would recommence contacting a tax professional however who can carefully examine your circumstances. Unforteantely, with the advent of gay marriage many fiscal devices (such as spusal treatment of beneifts) for those in domestic partnerships have been eliminated or roestricted.

Absent other info, you do not need to PAY any gift tax on a 2500,000 gift. (If you are in a position to use you entire gift tax exemption - you really really should be working with a tax pro anyway)
 
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KenKW

New member
#6
You have no community property under federal tax law, as you are not married.
I am not sure that is true. Reading www.irs.gov/pub555
Community or Separate Property and Income
If you file a federal tax return separately from your spouse, you must report half of all community income and all of your separate income. Likewise, a registered domestic partner must report half of all community income and all of his or her separate income on his or her federal tax return. You each must attach your Form 8958 to your Form 1040 showing how you figured the amount you are reporting on your return.

Generally, the laws of the state in which you are domiciled govern whether you have community property and community income or separate property and separate income for federal tax purposes.
This is good feedback. I doubt that I will ever have an $11.2M estate or ever approach that level of gifting. And I know that I will not have to pay gift tax until I go over the limit.

I think that I need to talk to a tax attorney.
 

xylene

Senior Member
#8
As someone who practices in CA, this is wholly incorrect. RDP's are still subject to CP law with regards to federal tax matters, including both income and gift tax.
What does that mean for the OP's pre-DP-registarion home sale proceeds and subsequent home purchase? The IRS definition of spouse is clear.
 
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#10
What does that mean for the OP's pre-DP-registarion home sale proceeds and subsequent home purchase? The IRS definition of spouse is clear.
What this comes down is that the OP bought a home that ended up being titled jointly to the two of them. Whether it was community property or just property held as joint tenants with a right of survivorship the result would be the same: there is a gift to the other partner to the extent of half that downpayment for federal gift tax purposes, and since the partner is not the spouse of the OP the marital deduction does not apply. Since the OP made more than $15,000 in total gifts to the partner during the year, that triggers a requirement to file a gift tax return and use up some of the OP's lifetime unified credit against gift tax. As others have noted, no actual gift tax has to be paid unless the OP has already used up that unified credit. It would have been nice to avoid having to use up a chunk of that credit, and had they been married at the time they did this, none of the unified credit would have been used up. This is one reason (among others) that registered domestic partners may want to consider getting married.
 
#11
My hope is that there may still be a way to not use my lifetime gift credit. If I must, it does not seem to be a serious issue. The lifetime credit has increased over the years. But what if it ever dramatically dropped?
 

LdiJ

Senior Member
#12
My hope is that there may still be a way to not use my lifetime gift credit. If I must, it does not seem to be a serious issue. The lifetime credit has increased over the years. But what if it ever dramatically dropped?
There is always that possibility. However, consider how far it would have to drop before it became an issue for you (you have to consider it yourself, we don't know how far it could drop without becoming an issue for you).
 
#13
My hope is that there may still be a way to not use my lifetime gift credit. If I must, it does not seem to be a serious issue. The lifetime credit has increased over the years. But what if it ever dramatically dropped?
Right now the credit effectively allows you to pass over $11 million free of estate and gift tax. But that will drop back down to over $5 million in 2026 after the Republican tax bill that was enacted last year expires. No one knows how else it may change in the future. That's one reason why it can still be smart to try to preserve the credit when you can.
 
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