[Kelmast]

My siblings and I owe a triplex. Neither of us live in it. My brother wants out. He doesn't want to sell his portion but he wants to gift it to us. Are there any tax implications for him if he does this?

[AtlantaTaxExpert]

There MAY be a gift tax implication. HOW MUCH is his share of the triplex worth?

[MukatA]

If the gift amount is more than $13,000, the donor will have to file gift tax return. Donor may or may not owe gift tax.

[Kelmast]

His portion is around $58 000.
Is there any way of doing it without having any taxes paid? This transfer is temporary, for about two years. Then he will go back on the house.

[AtlantaTaxExpert]

As MukatA noted, the gift tax ceiling is $13,000 per giftee. If you and your brother are married and/or have children, he can gift his portion of the triplex in $13K portions to you and your brother, then another four $8K portions to your wife, your brother's wife and to two of his nieces/nephews. This would completely avoid any requirement for a gift tax return.

Or he can just give it all to you and your brother and just file a gift tax return. The $32,000 he would report on the gift tax return would count against the Unified Credit (under his eventual estate tax return).

There would be no gift taxes due with the gift tax return, though he probably WOULD need to hire a competent tax professional to prepared the gift tax return.

[ebaines]

This transfer is temporary, for about two years. Then he will go back on the house.

Does this mean after he gifts his share to you he wants you to return it in two years? Then it's not a gift, but rather a loan, and I really hope you have a well-written contract that spells out the terms and contingencies - such as what happens if during the 2 years the house is damaged or detroyed, who pays for major repairs, etc.

[AtlantaTaxExpert]

Oops, I missed the fact that the transfer is temporary. Good catch, ebaines.

That being the case, go with ebaines' advice. The guidance I gave regarding the gift tax does NOT apply because, as ebaines noted, it is NOT a gift, but rather a loan.

[Kelmast]

Ebaines, since the transfer is temporary would he have to pay any taxes? Basically we want to refinance the triplex but his credit is not good. So we were told he had to do a transfer of ownership to remove his name from the house and mortgage. This would be for a temporary term of two years and then when his credit was established he could get back in the house as an owner.

[ebaines]

It would help if you could clarify what the expectations are during thse two years, and how firm the plan to put him back on the deed in two years time is. Is there a contract that spells this out? If there is, then it's as if he has gifted his share of ownership for a period of 2 years. Based on equivalent rental rates in the area you can do a calculation to see if its value is worth more than the annual gift tax exclusion, which is $13K/year per person. Since he is making this gift to two people this can be valued up to $26K without having to file a gift tax form. If it's worth more than that he should file a gift tax form, but no taxes are actually due (unless he has reached the lifetime limit of $5M in gifts).

If there is no contract, and also no expectation that he helps pay for mortgage or maintenance expenses during the two years, nor get any of the rental income, and he cannot use the property, then the IRS may look upon this as a true gift. So again, whether he has to file a gift tax form depends on the value of his 1/3 of the property. Then in two years when the two other siblings gift the original share back they in turn would have to file gift tax returns for the same reason.

I'm a bit surprised at the reason for this plan. If the credit rating for the other two siblings is good the bank should be happy if all 3 of you sign the mortgage docs together. Perhaps this has to do with how the property is titled - are you joint owners with right of survivorship, or are you tenants in common?