USA form 709 gift tax

[fusili3]

my dad and I owned a house jointly until 12/1/22. I signed my 1/2 of the house to him.

THE house waS worth $900,000 and is in california. ON FORM 709 I probably put the details on SCHED A; that is, on line 1 I will out my dad's name and the legal description of the house (parcel).

1. THE question is how do I prove that the house was worth 900k? DOES the mighty IRS take my word for it? I doubt it. CAN I GO TO zillow.com, realtor.com, and so on, take screenshots, and submit them as estimates of the worth of the house?

2. if the house is worth, say, 900k, then I put down '450k' in sched A, box 'F', for value of gift, as I gave 1/2 of the house, right?

3. that was my only gift, so I then skip forward to part 4, questions 1, 2, and 3, right?

4. I can see part 4, q 1 being 450k, but q 2 escapes me. do I put down $16,000?

5. ON PAGE 1, PART 2 'TAX COMPUTATION,' line 7's 'applicable credit amount' seems to my layman's brain to be $4,769,800. IF I am wrong, please tell me.

6. My balance after the subtraction becomes 0. I owe nothing, to my way of thinking.

7. IF my lifetime allowance is $12,920,000, and my gift was $450,000, then, with 12,920,000 - 450,000 = 12,470,000, I now have a lifetime GIFT/estate tax exclusion of $12,470,000, an amount that I will never reach in several lifetimes!

8. DOES this gift tax form go with in the 1040 envelope for2022 tax returns by the 4/18/23 deadline?

thanks!



3.

 

[BIG E]

Form 709 is filed separately from Form 1040, due April 18th, 2023.
The valuation of the gift is what your cost was up until the date of the gift.
Proof documentation is your share of the initial cost + your share of the capital improvements until date of transfer.
FMV is used when it transfers upon DEATH. Then an appraisal is required by a licensed real estate appraiser or
real estate specialist. I wouldn't use Zillow or any other public internet amount.
I had a situation about 2 years ago - where a client initially wanted to use the Zillow amount, when her father died, then I insisted that
she pay for an appraisal fee from a licensed appraiser, and was able to obtain an additional $ 100,000 more on selling the house.
There should be no tax due because you haven't used up your lifetime exemption.
The software program you use should subtract $ 16,000 from your share of the cost to report the net gift amount
that remains that reduces your lifetime exclusion.

 

[fusili3]

THANKS very much. I never considered my cost basis; I will have to find the original deed from 1965 and divide it by 2 for my cost basis.

OUR capital improvements are probably 0. WE never expanded the house or modified. Oh, we put in a concrete driveway and concrete patio, a new roof, and several water heaters and furnaces, but I have read that those are regular maintenance and not improvements. IS that right? IN any case, I mayh have difficulty finding the receipts from 50 years ago.

I also will have to pay to have the house professionally appraised. THE IRS cannot argue with the appraisal of a licensed professional, I assume, and for me, to be safe now is better than to be sorry later; morevoer, I have no need to quibble over the appraiser's estimate, as I have almost 12,500,000 left in my lifetime exclusion, but that amount rises to 14,197,000 in 2024, so my amount would be roughly 13,700,000.

 

[BIG E]

Any subsequent MATERIAL improvement made to improve the quality, safety, utility of the residence is considered an additional
cost of the property. The items you mentioned would qualify - but if you have no documentation to prove it, or recollect what
year the improvements were put in and estimate improvement cost - you are out of luck.

In your circumstance - an appraisal wouldn't help you because you gifted him your interest while you were alive - that is based on
your cost basis, not an appraisal value - that is used to value property for an owner's death or establish a selling price to a third party.

The fact that you'll never use up your total exclusion value is irrelevant. Your father has to have a reliable value to use when he sells that house based on the tax law in effect at the time of transfer to him.

 

[fusili3]

THANKS again! My dad is 93 and he is planning on creating a trust to give the house to his nephew.

THE APPRAISAL that I am referring to is for 2022 GIFT TAX form 709, Schedule A on page 2, Part 1, column F 'value at date of GIFT.'

ALL of the real estate agents who come by to talk my dad into selling the house have said that the house is worth between 850k and 950k. WIll the IRS take their word for it? Should they put their estimates in writing so that I can submit them as proof of the 'value at date of gift,' which was 12/14/22? IF not, will the IRS just take my word for it or can I use the zillow.com estimate that I mentioned earlier? DO I need a professional, licensed real estate appraisal?

I can average out the estimates from the online sites and/ from our local real estate agents and come up with $900,000 for the value of the house, which would be $450,000 on line F because I gave my dad my 1/2 of the house (IF my assumption is correct that I just divide the value of the house by 2).

THE problem is WHAT TYPE OF PROOF, if any, does the IRS want? I want to be in compliance with the IRS's rules/expectations, but the form 709 and the booklet OFFER NO GUIDANCE.

THANKS. I am curious about what you will suggest. I appreciate your help. THANK goodness that the state OF CALIFORNIA does not have a gift tax return!!!

 

[BIG E]

Your father has got 2 different valuation issues.

Since you and he each own 50% - while each of you are alive - you must use your respective cost basis of the place.
FMV doesn't come into play until either of you are dead and the transfer is made upon the death of one of you.
You must file a Form 709 to show what your cost basis is. The annual exclusion is subtracted from your basis.
But your father uses your cost basis to add to his value (for his half) to come up with his new basis.

That new basis is what's used for valuing the asset in the trust he wants to set up.

A FMV valuation by a licensed real estate appraiser or licensed real estate expert is used to determine a selling price.

If your father dies before gifting house to nephew, that's when FMV is needed and used.

No - IRS does not just take your word for it or the appraiser's word for it - it needs documentation such as original closing statement + receipts from major capital improvements. In absence of paper records, a real estate appraiser possibly can establish FMV at specific periods of time in which
the house was constructed and FMVs of various jobs done based on when in the home's history the jobs were done. Maybe the
local government assessor has a record of initial cost upon closing when property was transferred.

 

[fusili3]

we have the purchASe document from 1965 with price on it--$20,000. I therefore put '$10,000' on form 709, Sched A, line 1D, "DONOR'S adjusted basis of gift," for MY cost basis, if I follow your reasoning.

I can photocopy it and include it in the packet. THAT document will cover my cost basis, which, as you wrote, will revert to my dad, who will add it to HIS cost basis.

THANKS. AFter I complete 709, my job is finished, as I see it; if not please tell me. I mean that, after I complete 709, I have no more forms to complete for this gift tax transaction, as it is not a yearly requirement.

WHEN my dad dies, though, I may have to complete papers regarding the transfer of the house, but he is planning to put it in a trust for him and his nephew very soon, so maybe, if I am lucky, no more tax forms will be necessary. His nephew will automatically get the house. What paperwork could be involved, especially for me?

 

[BIG E]

I'm sure that since 1965 - some improvements were made to the house that enhanced its value -
even if you don't have receipts for everything. Maybe there were improvements that required
government permits that are on record with some cost notations as to what they were.
Roofs need to be replaced sometime since 1965, boiler/heater replacements, electrical rewiring,
plumbing replacements, etc. I'm sure that there would have been other things besides the
original cost.

Once you file the Form 709 properly reporting your cost basis of the property - you are done.
All you need to do is keep a copy of the Form 709 permanently just in case you gift property -
in excess of the annual limit whether in cash or tangible/intangible property in the future -
you'll need to refer to it when and if you will need to file an additional Form 709.

I suggest your father seek an attorney to deal with his intention to further transfer the property
into a trust. He's going to need a copy of your gift tax return to establish his basis for the portion
transferred from you. Whenever a transfer will be made, especially when he dies - an appraisal
be made.

 

[fusili3]

THANKS. I will search for the documents in a big folder that I have; they just may be there.

REGARDING 709, I should file it and KEEP a copy forever, as I WILL have to refer to it if I make another gift AND because my dad's estate will need it for his new cost basis. MY dad's estate will have to have the house appraised after he dies.

HE definitely will consult an attorney for the living trust despite well-intentioned friends and relatives urging him to get a skeleton form from the internet and do it yourself! HE--and I, for that matter--could not do it properly and, if we erred somehow, we may very likely put the house in the wrong hands or create some other type of unwanted situation. YES, an attorney is definitely the way to go for us.

thanks again--Oh, do you know if I am supposed to put

FORM 1040ES (estimated tax for 2023) in the same envelope with my regular 2022 1040 form this April 18 or does it take a separate enveloope? THANKS!

 

[BIG E]

Tax estimates do NOT get filed with Form 1040.
They are sent to a different address (most likely a different P O Box)
If you go to www.irs.gov and search for Instructions for Form 1040-ES for 2023 - there's a list of where to mail it
to depending upon your state.

 

[fusili3]

THANKS. I have not gotten the FORM 1040 ES yet or the form 1040, for that matter. I always file paper copies; perhaps when the copy arrives, I will get the address, but in the interim, I will take your advice and to to the irs site to copy it now.

TO summarize, forms 1040, 1040 ES, and 709 get filed in separate envelopes. ALL of them likely go to different addresses, so I should go to IRS site NOW to copy the proper addresses so that I have them when I finally latch onto the paper forms.

 

[BIG E]

Yes - I would do that.
Remember though - if your share of the house basis is under the threshold of $ 16,000 you don't have to file a Form 709 at all.
It's only if you exceed the $16,000.

 

[fusili3]

THANKS. My share of the house is $10,000 because we paid $20,000 total in 1965. I guess that I do not have to file because, as you wrote, the exclusion of $16000 for 2022 exceeds my share. WOW! I am lucky. THANKS again for the good news.