Quitclaim deeds supply a simple process for people to move their interest in a property to another person. These deeds are occasionally utilized to present property to a relative, charity, trust or buddy. The quitclaim process requires no money . Rather, the land owner only signs a document, which must be notarized and recorded with the county recorder. When the document has been implemented, though, there are tax consequences that both parties need to take under consideration.
Property Tax Implications
A quitclaim deed is not a way of preventing back property taxes. If you owe property taxes, the tax must be paid by whoever wishes to transfer ownership. The grantee, or the person who takes interest in the house, cannot set clear title until the back taxes are paid. This is because the tax authority still has a right to put a claim on the property. A claim may nullify a quitclaim deed. If the grantor, or the person who brings interest in the property, pays the tax due before the quitclaim deed is contested in court, then the grantor still maintains interest in the property. A quitclaim deed also cannot be used to prevent a national or state income tax lien. After a grantee takes a home, he inherits the duty of paying the property taxes. The grantor no longer is obligated to pay tax on the property.
Gift Tax
Because no money changes hands during a quitclaim, the Internal Revenue Service applies federal gift tax rules to these transactions. Through a national income tax return, the grantor must pay tax on the home under the present tax principles. The receiver of this property is permitted to pay the tax when she agrees to make the payment. Individuals are permitted an exclusion of $13,000. Married couples who share ownership of the gifted property are permitted a 26,000 exclusion. Under these principles, the present tax is assessed only for the amount of value above the exclusion level.
Other Considerations
Quitclaim deeds aren’t taxable when they transfer ownership to your spouse. Many quitclaims are completed to allow a spouse ownership. This often takes places during a divorce settlement. Quitclaim deeds also aren’t taxed when they move land to qualifying charities. For income tax purposes, you cannot deduct the value of a present from income tax unless the gift is to some charitable organization. IRS Publication 950, Introduction to Estate and Gift Taxes provides many examples of how the present tax principles are applied to several situations.