Advice from an enrolled agent helpful for tax issues
Tribune Content Agency Q: Ireadyour
advice to the woman wanting advice on transferring her home to her daughter. She noted a purchase price/basis of $100,000, but not when it was purchased, so that question needed clarification. I retired from the IRS with 30 years of service and I aman enrolled agent at this time.
If she “sells” the house to her daughter for $100,000, it would be important to know whether the home was a rental property and for how long. If she owned it for some time, she might have depreciated the home over the years and she could have a significant tax to pay on the sale.
Another element to consider is if the fair market value of the home is significantly higher than the purchase price to her daughter, the difference could be of importance, even if she carries the loan on the home. Of course, being a lender on the home raises issues as to whether the interest rate and terms between them are similar to those in the financing market place. If the terms are not in line with the market, she could have an issue of a bargain purchase.
If she gifts the property, the mom will exceed the $14,400 max allowed per calendar year and must file a gift tax Form 709 with the IRS, and may have to pay a gift tax. The same issues will exist as to her remaining basis or fair market value, which may result in the amount of gift taxes due. If she rents the property, or uses a lease to buy, many of these same issues exist as well as the payment of market rent, which could result in tax levies if there is a bargain rent issue.
In any case your advice was correct in her contacting an attorney, but he/ she should be versed in not only real estate laws of the state in which the property is located, but on applicable federal and state tax laws.
I have found in my 44 years in the tax arena that a significant number of real estate attorneys are somewhat less knowledgeable about the tax laws on the transfers than they should be and those who are usually work with CPAs and enrolled agents who can provide the correct interpretation of the tax effect of the particular transaction. A:
Thanks for the added information. We’re big fans of EAs (enrolled agents), and like to promote them along with Certified Public Accountants (CPAs) as good resources for consumers.
While we’re glad we provided some helpful information, you certainly added quite a number of issues for our reader to consider. While not all real estate attorneys will know all the tax details, we’d hope that they could refer a person to an accountant or EA for further information. If you are looking for help with a tax issue, you can find an EA near you on the NAEA website at TaxExperts.naea. org.
Ilyce Glink is the creator of an 18-part webinar and ebook series called “The Intentional Investor: How to be wildly successful in real estate,” as well as the author of many books on real estate. She also offers information on her YouTube channel. (youtube.com/user/ ExpertRealEstateTips).
Contact Ilyce and Sam through her website, ThinkGlink.com.
© 2016 Ilyce R. Glink and Samuel J. Tamkin. Distributed by Tribune Content Agency, LLC.