Joint Tenancy, IRS Form 709, and Property Tax Deductions

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Latest post Mon, Feb 6 2017 1:48 PM by Drew. 15 replies.
  • Thu, Feb 2 2017 7:26 PM

    • TR28
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    Joint Tenancy, IRS Form 709, and Property Tax Deductions

    Hello. I am the original poster of the following thread:

    http://community.lawyers.com/forums/t/168058.aspx

    I am using a different screen name because I can not find the login information of my old screen name.

     

    Last year, my mother added me to the title of her home, in a Joint Tenancy with Right of Survivorship (JTWROS) situation. She also gave me a small cash gift of a few thousand dollars. I'm trying to explain to my mother that she has to fill out Form 709, to inform the IRS that she gave me a gift of over $14000.

    Unfortunately, the attorney who handled the JTWROS matter, did not mention anything about Form 709. And my mother believes that, if the attorney did not mention Form 709, then my mother does not have to fill out that form. Also, my mother argues that she and my father did not have to fill out such a form when they paid my college tuition. Therefore, she does not have to fill out this form now.

    So, does my mother have to fill out this form? If yes, and if she does not do that, what are the penalties?

     

    Also, my mother deducts her property tax from her federal income tax using Schedule A (Itemized Deductions). Since I am now owner of half of the house, my mother expects me to pay half of the property tax. However, she wants the following situation to occur:

    She writes a check for the entire property-tax bill. I write her a check to reimburse her for half of the property-tax bill. She deducts the ENTIRE property-tax amount on her Schedule A form, as if she paid the entire property-tax amount herself and was not reimbursed. This sounds illegal and fraudulent to me, but I want other people's opinions as well.

     

    Thank you.

     

  • Thu, Feb 2 2017 11:00 PM In reply to

    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    TR28:

    Unfortunately, the attorney who handled the JTWROS matter, did not mention anything about Form 709. And my mother believes that, if the attorney did not mention Form 709, then my mother does not have to fill out that form. Also, my mother argues that she and my father did not have to fill out such a form when they paid my college tuition. Therefore, she does not have to fill out this form now.

    So, does my mother have to fill out this form? If yes, and if she does not do that, what are the penalties?

    If the value of your share of the property plus all other gifts she gave you during the year exceeds $14,000 then the Form 709 must be filed. She likely will have no tax to pay as a result, so there is no reason not to do it. There is no penalty for filing the return late so long as there was no tax due on the return. But if she does not file it then it can come back to bite her estate later on should the estate be large enough to be subject to estate tax. Note that a willful failure to file the return can be prosecuted as a crime. 

    TR28:
    She writes a check for the entire property-tax bill. I write her a check to reimburse her for half of the property-tax bill. She deducts the ENTIRE property-tax amount on her Schedule A form, as if she paid the entire property-tax amount herself and was not reimbursed. This sounds illegal and fraudulent to me, but I want other people's opinions as well.

    It is not illegal nor it is fraud. You two may do that if you wish. But of course you would no be able to deduct any property tax paid in that circumstance. 

  • Fri, Feb 3 2017 11:25 AM In reply to

    • TR28
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    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    "If the value of your share of the property plus all other gifts she gave you during the year exceeds $14,000 then the Form 709 must be filed."

    Dies she file Form 709 with her 1040 Income Tax Return? Or does she file that form separately?

     

    "It is not illegal nor it is fraud. You two may do that if you wish. But of course you would no be able to deduct any property tax paid in that circumstance."

    If we do the property-tax thing the way my mother wants, would my reimbursement of half the tax, be considered a gift to my mother from me?

  • Fri, Feb 3 2017 12:22 PM In reply to

    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    TR28:

    [Does] she file Form 709 with her 1040 Income Tax Return? Or does she file that form separately?

    It's filed separately, but the due date for filing it is the same as for the 1040.

    TR28:
    If we do the property-tax thing the way my mother wants, would my reimbursement of half the tax, be considered a gift to my mother from me?

    No. You are sharing an expense of property you co-own.

  • Fri, Feb 3 2017 12:29 PM In reply to

    • Drew
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    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    Why worry about who pays taxes..the person who pays it deducts it ....

    AS an aside, if Mom added you to title of her home but did not surrender dominion and control...like she continues to live there and or reserves a life estate , she has not made a completed gift ...it gets a bit tricky to follow...and for smaller estates may actually be good news as to step up in basis ....

    IF you insist, fill out a form 709 and have  mom sign it ....



  • Fri, Feb 3 2017 10:31 PM In reply to

    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    Drew:
    AS an aside, if Mom added you to title of her home but did not surrender dominion and control...like she continues to live there and or reserves a life estate , she has not made a completed gift ...it gets a bit tricky to follow...and for smaller estates may actually be good news as to step up in basis ....

    No, Drew, that's not right. You keep saying that when people post about real estate, but it's not accurate. It is true that adding a person as a joint tenant to a bank account or other financial account generally will not result in a completed gift until the new joint ower actually takes out the money, but with real estate transfers, the donee joint tenant gets immediately gets all the rights of an owner to the property, including rights to possession and use of the property and as a result there is a completed gift. Whether or not he or she actually exercises the right to possession does not matter. Similarly, where a person transfers property but reserves a life estate, there is also a completed gift because the remainder persons, though they do not have immediate possesion, do have a vested property interest. 

  • Sat, Feb 4 2017 5:39 AM In reply to

    • Drew
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    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    Mom is all wet about a comparison of paying tuition to instution vs gifting joint ownership in home to you ..apples to marbles ....

    Mom should file a 709 ....but it's largely her problem if she does not.....the form itself is pretty easy so why the fuss ? 

    How you and mom chose to share ownership expenses is up to you ...but in short the person making the tax payment is the only one entitled to deduct same .  IF you chose to hand Mom $XXX that's fine but you have no duty to do so. .....I fail to see "fraud " in there. 

    Tax agent is correct ...immediately upon adding you to deed you got rights to use the place...and in my state , perhaps most/all , to demand partition .

    The practical matter may be If you expect Mom to make future modest gifts you best not make big fuss and bite her hand . 

     



  • Sat, Feb 4 2017 6:02 AM In reply to

    • Drew
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    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    I doubt her attorney told her to ignore a 709.....the only smart move is to be sure to,tell client to file a 709 ...Circular 230  section 10.21 says just that ...and while some report 60-90 % noncompliance for intra family transfers  and suggest no real,world penalities for modest estates not subject to estate tax due ...if there was a failure to file 709s and Mom leaves an estate in federal tax territory that just one more problem for her executor to unwind...perhaps paying a pro $300 an hour later for hours to do what is a few minutes of time had mom done it timely or voluntarily earlier . 



  • Sat, Feb 4 2017 11:29 AM In reply to

    • TR28
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    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    Taxagent:

    If the value of your share of the property plus all other gifts she gave you during the year exceeds $14,000 then the Form 709 must be filed. She likely will have no tax to pay as a result, so there is no reason not to do it. There is no penalty for filing the return late so long as there was no tax due on the return. But if she does not file it then it can come back to bite her estate later on should the estate be large enough to be subject to estate tax. Note that a willful failure to file the return can be prosecuted as a crime. 

    Thank you very much for your response, Taxagent. When I posted the Form 709 question to this forum, I also asked the same question, in email, to the attorney who handled the JTWROS matter for us. I just got a response from him, and here is what he said:

    ---------

    Your mother is correct.  Unless your mother's estate approaches the amount where estate taxes are a concern, there is no need to be concerned about filing a gift tax return.  The Illinois estate tax does not apply to estates under $4,000,000.00 so unless your mother's estate is in the area of 4 million dollars, no need to file a gift tax return.

    ---------

    So, is our attorney incorrect?

     

  • Sat, Feb 4 2017 11:34 AM In reply to

    • DOCAR
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    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    While practically he is correct as there are no consequences if her estate does not meet the threshold, but taxagent is correct in that technically a return is required in the circumstances you outlined.  I think the attorney's key words are "there is no need to be concerned".

  • Sat, Feb 4 2017 1:35 PM In reply to

    • Drew
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    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    I don't get Moms point in refusing to file a docuement that probably takes less time than to debate the issues ...true there may be no exposure for modest size estates ....roughly, what might Moms estate be ?  

    Just out of curiosity...what makes you think you have a duty to pay mom anything re this gift?   And what current use are you making of your 50% interest ...are you living there or do you rent your share out or what ? 

     



  • Sun, Feb 5 2017 4:30 PM In reply to

    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    TR28:

    Thank you very much for your response, Taxagent. When I posted the Form 709 question to this forum, I also asked the same question, in email, to the attorney who handled the JTWROS matter for us. I just got a response from him, and here is what he said:

    ---------

    Your mother is correct.  Unless your mother's estate approaches the amount where estate taxes are a concern, there is no need to be concerned about filing a gift tax return.  The Illinois estate tax does not apply to estates under $4,000,000.00 so unless your mother's estate is in the area of 4 million dollars, no need to file a gift tax return.

    ---------

    So, is our attorney incorrect?

    Technically he is incorrect to the extent his statement implies that the law does not require her to file a return. The federal tax code requires that she file the return if she gave gifts to you during they year that together exceeded $14,000. However, to the extent that he is merely saying that there may be no adverse consequence to her for failing to file, he would be correct. I noted earlier that there is no penalty for failure to file it when there is no tax due, but that if she ends up with an estate large enough that estate or gift tax would be due then the failure to file this gift tax return could come back to bite her (or her estate). As there is no downside to filing the return now but a potential downside to not filing it, my view is that there is no reason not to file it.

    She might not think she'll ever have enough assets to worry about gift and estate taxes, but who knows what might happen. Bear in mind, too, that while the law is generous in how much a person and that person’s estate may pass tax free now that might change some day down the line.

    But if it turns out that the law does not change and that she never has enough assets to trigger estate or gift tax then the attorney is right that "there is need to be concerned about filing a gift tax return." I'm guessing this attorney is likely not a tax attorney and thus may not know the tax law in detail and may not fully appreciate exact reasons why it may still be a good idea to file the return now. He's making certain assumptions that, if true, would indeed mean she need not worry about filing it. But should those assumptions turn out to be incorrect, it could be a problem. A good tax attorney would therefore advise her to file both because the law requires it and because there is no real downside to filing now but there might be a problem later if she doesn’t.

  • Sun, Feb 5 2017 10:59 PM In reply to

    • TR28
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    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    Taxagent:

    I noted earlier that there is no penalty for failure to file it when there is no tax due, but that if she ends up with an estate large enough that estate or gift tax would be due then the failure to file this gift tax return could come back to bite her (or her estate).

    You stated earlier that willfully not filing Form 709 could result in criminal penalties. If my mother does not fill out the form, and if she passes away and her estate does generate an estate tax, who would be prosecuted for her not filing the form?

     

     

  • Sun, Feb 5 2017 11:08 PM In reply to

    • TR28
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    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    Drew:

    Just out of curiosity...what makes you think you have a duty to pay mom anything re this gift?   And what current use are you making of your 50% interest ...are you living there or do you rent your share out or what ? 

     

    I am living in the house with my mother. 

    My mom has health issues, and she wanted to make sure that, if she were to pass away, the house would come to me without probate. She knew about both Joint Tenancy and Transfer on Death instruments, but she chose Joint Tenancy.

    My mom insists that, if I am half owner of the house, I should pay half the expenses (property taxes, gas bill, water bill, electricity bill).

     

     

  • Mon, Feb 6 2017 5:44 AM In reply to

    Re: Joint Tenancy, IRS Form 709, and Property Tax Deductions

    TR28:

    You stated earlier that willfully not filing Form 709 could result in criminal penalties. If my mother does not fill out the form, and if she passes away and her estate does generate an estate tax, who would be prosecuted for her not filing the form?

    Two points. While it is possible for the government to prosecute a willful failure to file a return, that's not a very likely circumstance if there is no tax being avoided by the failure to file the return. Moreover, the government has to prove wilfulness, not just the failure to file. I mentioned the possibility of it for the sake of mentioning everything that might apply, but I did not mean to suggest it was a likely thing to happen.

    Second, only your mother would be subject to prosecution. If she dies before any prosecution is initiated then there is no one for the government to prosecute and it just dies.

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