Tax Law (Questions About Taxes)/Gift of Equity

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Expert: John Stancil, CPA - 7/8/2009


Question
I'm trying to determine if there is a tax consequence on a gift of equity.  My father in law is selling his house to my wife (his daughter) and I for less than market value.  My understanding that any amount over the normal gift ($13,000) per person, will be considered a gift.  From further reading it appears that this tax would be on my father-in-law, the donor, not us the receivers of the gift of equity.  For example purposes, the gift of equity will be about $100,000.  It also appears that this amount may not be subject to tax if reported by my father-in-law as part of a $1,000,000 exemption.  Can you please clarify this exemption and how it should be properly reported.  Does this $1,000,000 exemption mean that he is allowed to gift up to $1,000,000 in his lifetime outside of the annual allowance to all others combined?  Thanks for your help!

Answer
Todd,

Thanks for your question.

The $1,000,000 exemption is his lifetime exemption above and beyond the $13,000 annual per person exemption.

Since the gift exceeds the annual exemption, he must file a 709, Gift Tax Return.  However, since he has not used up his lifetime exemption, no tax would be due.

Hope this helps.

John Stancil, CPA

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John Stancil, CPA

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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 35 years. I am a member of the AICPA, National Association of Tax Professionals, and the Institute of Management Accountants. Visit my website at www.johnstancilcpa.com. Also visit my blog, www.thetaxdocspot.com. Prepare and file your own taxes at www.1040stancilcpa.com

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I hold a doctorate in Accounting, and four professional certifications: CPA, CMA, CGMA, and CFM. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 30 years and have taught accounting and tax at the college level for over 30 years.

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AICPA, FICPA, IMA, NATP

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly.

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DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill College

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