My father's name is currently on the title of my condominium in Washington, DC (he co-signed the original note). Is there a way to remove him from the title without suffering any tax-liability? Quickclaim Deed?
Thanks
(he co-signed the original note). Is there a way to remove him from the title without suffering any tax-liability? Quickclaim Deed?
Is there still a lien on the property or is the mortgage paid in full?
The issue isn't how but why. If the "why" is right, the how doesn't really matter.
For example you say that he cosigned the original note. Does that mean he didn't put up any of the downpayment himself? Does it mean he didn't make any of the mortgage payments? Was it because he was only on title as security or because the bank required it?
If that's the case, he has no equity in the house. He can give you a deed for his interest (he has to give you some kind of deed to get off title), and there will be no tax implications because his gift had no real value.
Now if he does have some equity in the house, that's going to be another issue. You first have to figure out how much his interest is worth.
As of January 1 he can give up to $14,000 per year per donee without incurring gift tax. If you are married the gift can be made to both of you, and that would double the amount to $28,000. If your father is married he can elect to "split" the gift, meaning it can be treated as half coming from him and half coming from his wife. That will also double what he can give tax free, up to a possible $56,000.
If his equity is more than the exempt amount he can give in one year, there are different ways to deal with this. One would be for him to deed you his percentage of the house that corresponds with the exemption he is allowed. For example let's say the house is worth $560,000, and your father owns a 50% interest, and he can make $56,000 in gifts. This year he transfers 1/10th of his interest to you, reducing his share to 40% and increasing your share to 60%. And he does the same thing each year until he has transferred all of his interest.
The problem with this is that you have to have the house appraised every years, so you can be certain that he is transferring the right amount. And he stays on title until all the gifting is complete.
Or he can sell you his interest in the house on an installment sale. The payments can be set up to be equal to or less than the exemption amount. The upside of this approach is that he goes off title immediately. The downside is that interest will be imputed on the loan, and either you or he will have to pay actual tax on the interest that never actually gets paid. Another problem with this approach is that you have to send him actual checks for loan payments, and he has to actually decline to cash them. If you don't do that the IRS might consider the sale transaction a sham and deem the whole thing a gift all in one year.
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