Several households pass their assets down over the generations, usually done after a property owner has died, as part of the administration procedure. However, there are times when a homeowner wishes to hand over control of a part or all of their property while still living, to a close relative.
Likewise, parents might want to gift their children a piece of property as a wedding present, in which case they will issue a quitclaim deed to the recipient family member, as against going through the sometimes tedious and costly procedure of a standard property transfer.
Although most Quitclaim deeds are used between family members, they can also be used between two people who are familiar with one another. A divorcing couple, for instance, could utilize this procedure to allocate possessions from one spouse to the other, or a homeowner could give half ownership to someone else. Hence, it is fundamental to comprehend the tax ramifications of adding someone to a deed before proceeding with any type of transaction.
In-Depth Details About Quitclaim Deeds
A quitclaim deed also called a quick claim deed is a simpler way of transferring property from one person to person, commonly utilized in families when a member wants to transfer ownership to another without having to go through probate or a sale.
A quitclaim deed, unlike a warranty deed, provides no ownership assurances. Furthermore, no distinctive property interests are listed in this sort of transfer, which could be an issue if the property owner wishes to sell it later on. With this in mind, one must consider the tax implications of deed transfer in detail.
Quitclaim deeds are preferred by many people owing to their practicality. Lien searches are not required and it is a fast and simple method for assigning property to someone, which is why they are also falsely described as the “quick claim” deeds because it takes a minimal amount of time and work of a traditional acquisition or property transfer. A quitclaim deed can also be used to fix mistakes on an original deed or to resolve a border dispute.
Looking into the Tax Ramifications
Both entities participating in the quitclaim deed have certain obligations and because a quitclaim deed does not need a title check, the individual who has received the house deed may also blindly assume undisclosed tax obligations, such as liens or boundary controversies, which may influence the property’s true worth.
When committing to this arrangement you should be certain that such a circumstance does not occur, or be willing to assume financial responsibility if one does.
Acquiring a House
While quitclaim deeds make it more convenient to bequeath real estate properties to relatives, they can result in tax liability for the seller if the property is sold at any moment in time. This is particularly valuable if the price of the asset has improved since the deed was signed. The individual who was bequeathed the property could dispose of it without incurring capital gains tax if the source inherited it and subsequently completed the quitclaim deed to another person.
If the giver received the property via a quitclaim deed and subsequently completed another quitclaim deed, the person who received the property last would be liable for capital gains tax if he sold it, which can differ based on the property’s worth.
If the transaction is not a sale, the quitclaim deed is deemed a present for the giver. As a result, that recipient must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, with the Internal Revenue Service (IRS).
Up to $5.5 million of the property’s worth can be allocated to the tax liability and if any tax debt is owed, the recipient will be unable to proceed with arrangements for the property, such as selling it or maybe using it as collateral, until the outstanding taxes are paid.