AboutJohn Stancil, CPA Expertise I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I teach tax and accounting at a small church-related college. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a part time tax practice for over 30 years. I am a member of the AICPA, National Society of Tax Professionals, and the Institute of Management Accountants.
Experience I hold a doctorate in Accounting, and four professional certifications: CPA, CMA, CFM, and CIA. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I write a monthly tax column for the local newspaper.
Expert: John Stancil, CPA Date: 7/17/2008 Subject: Is gift tax due on 3rd party loan payoff?
Question Hello.
My father and I are joint owners (50% each) of a vacation property in Washington, and both our names appear on the deed/title. Several years ago, my father took out a 15 year mortgage against this property in his name only. My wife and I would like to pay off this mortgage.
Would this payoff considered a gift and be subject to gift taxes? Is only half of the payoff amount a gift since we are 50% owners of the property?
The IRS rules seem to define a gift as a situation where we don't receive anything of equal value in return for the money that we're giving, but in this case we're removing a bank's lien or interest in property that we also own. I've become very confused reading though the tax rules, and would really appreciate your help.
Thank you!
Answer Mickey,
Thanks for your question.
Because you are not liable on the debt, your paying off the mortgage would be considered a gift. If the amount is more than $24,000 ($12,000 each for you and your wife) it would be a taxable gift and a gift tax return must be filed. There is an additional $1,000,000 lifetime exemption so it is likely that no gift tax would be due. However, your estate tax exemption would be reduced dollar for dollar.
