Quitclaim deeds are widely used to complete real estate transfers between family members. You might want to grant your property to your son as a gift or as part of your estate planning. A quitclaim deed will work for this; however you should be aware of some potential tax consequences.
Most states impose a tax on the transfer of real property. It is known by a few different terms, such as transfer tax, stamp tax and excise tax. In addition to state-imposed fees, some counties and cities impose a tax. The taxes are generally calculated by taking a percentage of the sales price listed on the deed, multiplied by a standard rate. For example, Florida charges 70 cents per $100, as of June 2012. However, due to their purpose sometimes quitclaim deeds do not list an actual sales price, or they may list an arbitrary amount such as $1 or $10, so the tax might not be applicable. This generally occurs when the property is transferred as a gift, since your son wouldn't pay you anything in exchange. Further, most states have exemptions for parent-to-child transfers.
If your son doesn't pay you for the property, you are giving him a gift. The IRS imposes a gift tax on practically any gift made during the tax year. There are some exclusions to this tax; however gifts to children are not included. Individuals are allowed up to $13,000 per year in nontaxable gifts, as of 2012. Married couples can claim $26,000. In regard to property, the fair market value is used to assess the value of the gift. At tax return time, you will need to fill out a gift tax return using Form 709.
After you sign the quitclaim deed, it should be recorded with the county clerk. This documents the transfer and now your son's name will show up as the owner on future title searches. Additionally, this will make him responsible for property taxes because the owner of the property according to the county records receives the tax bill. While this takes a tax burden off of your shoulders, your son needs to understand that he will be paying it going forward. Property tax amounts vary greatly across the United States and are collected at different times during the year. You will be responsible for the property taxes for the portion of the year up until the quitclaim deed was signed, and your son for the remainder of the year.
Transferring your property to your son while you are still living will prevent him from paying an inheritance tax in the future. Inheritance tax is different than the government's estate tax and is imposed at the state level. Any beneficiary who received property as an heir after your death will be taxed on that property. The children of the deceased are usually taxed at a lower rate than, for example, a nephew or close friend. However, since the property will already be in your son's name he won't be responsible for an inheritance tax on the property.
- Marquette County: State Transfer Tax Exemptions
- National Conference of State Legislatures: Real Estate Transfer Taxes
- Probate Estate Planner: Quit Claim Deeds, Probate Panacea or Pitfall?
- Internal Revenue Service: Publication 950
- Internal Revenue Service: Frequently Asked Questions on Gift Taxes
- Dianne Reis, Attorney At Law: What's The Difference Between an Inheritance Tax and an Estate Tax?
- Bankrate: Death and taxes: Inheritance Taxes
- Stockbyte/Stockbyte/Getty Images