Mom wants to give home to son. House is worth $200k. Mortgage is paid off. Some web articles say gift tax will be owed for value over $12k, the yearly allowance. Some web articles say gift tax won't be owed because house value below "life time exemption" limit. Which is it?

NightDiver:

The transfer of the home is definiely a gift, so a gift tax return WILL be required!

However, there is a lifetime $2 million estate tax exemption. Note that gift and estate taxes are linked, and the giver (in this case, the mom) can access that $2 million estate tax exemption when she files the gift tax return.

Hence, though a gift tax return will have to be filed, NO TAXES will be due if the mom uses part of the estate tax exemption.

So what you are saying is that Mom can only give up to $12k CASH a year tax free. However mom can give ASSETS IN HER ESTATE worth more than $12k in one year tax free. She can give ASSETS IN HER ESTATE tax free up to $2 million, no matter if it's within a year, or over the course of her lifetime (at least according to the current law)?


If I understand you correctly, she has to claim the assets as a gift on her taxes, but there is another line where she can claim the assets as part of her estate and that will cancel out the tax burden up to $2 million lifetime (according to the current law)?

You are allowed to gift $12K in a calendar year to an individual without any tax consequences at all. It doesn't matter whether a gift is cash, property, securities... whatever. What's important is the fair market value of the item being gifted. Any gift with value above $12K must be disclosed on a special gift tax form 709 - this is not part of your normal 1040 income tax form but is something completely different. On that form you record the value of the gift and also the total of all other gifts reported in previous years on Form 709. As long as the total value of all gifts ever reported via gift tax forms throughout your lifetime is under $2M, no tax is due. However, there may be implications down the road when you die in that these gifts will cause a reduction in the lifetime exclusion from federal estate taxes. Again, this is only a concern if the total value of the estate is greater than $2M. Think of it like this: the government wants to tax the assets of "rich people" when they die (hence we have an estate tax) and they don't want people trying to slip out of it by giving their property away before they die - hence the gift tax. Both the gift tax and estate tax are closely linked. There's more info you may find useful here:
Gift Taxes
and here:
http://www.irs.gov/pub/irs-pdf/p950.pdf

Ebaines' excellent explanation is more detailed than mine.

However, to be thorough, you really shold contact a local tax professional and have a face-to-face meeting to have him explain all the details to you.

The life time gift exemption is $ 1 million. Estate exemption for 2008 is 2 million; it is 3 million of 2009.