Sanity Check: reporting gift subject to debt on 709

Technical topics regarding tax preparation.
#1
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What is the best way to report a gift subject to debt? Rental House was purchased for 800k. Debt is 500k. FMV of the House is $1.2M. It's a nonrecourse debt.

Assume for simplicity, gift was done to only 1 heir. I can figure the percentages later.

Is the house reported as a net gift of 700k on the 709 and adjusted basis 800k?

It looks a little weird because the AB is 800k but the gift is for only 700k.
 

#2
keiser  
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"gift" or "bequest"?
 

#3
Nilodop  
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Part gift, part sale. See 1.1001-1(e) and 1.1015-4.
 

#4
MilesR  
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Nilodop wrote:Part gift, part sale. See 1.1001-1(e) and 1.1015-4.


Treas Reg 1.1001-1(e) if the adjusted basis of the rental prop is lower than the debt assumed by the donee, which is unlikely unless it was acquired a while ago and there was a cash-out refi or something.

Net gift would be 700k. Basis = 800k.

Is there a tax reason for this gift or whats up? Why transfer now and not wait for step-up? Is the estate tax going to be an issue? If not, what about also adding a life estate on the title in order to get a step-up?
 

#5
Nilodop  
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Absolutely right. I read the facts too fast, and thought debt exceeded basis.
 

#6
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MilesR wrote:
Nilodop wrote:Part gift, part sale. See 1.1001-1(e) and 1.1015-4.


Treas Reg 1.1001-1(e) if the adjusted basis of the rental prop is lower than the debt assumed by the donee, which is unlikely unless it was acquired a while ago and there was a cash-out refi or something.

Net gift would be 700k. Basis = 800k.

Is there a tax reason for this gift or whats up? Why transfer now and not wait for step-up? Is the estate tax going to be an issue? If not, what about also adding a life estate on the title in order to get a step-up?



Thank you all! Husband doesn't trust the much younger wife and the husband has a terminal illness which may mean he may die within 5-10 years.
 

#7
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keiser wrote:"gift" or "bequest"?


Gift
 

#8
MilesR  
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cpambt22 wrote:
MilesR wrote:
Nilodop wrote:Part gift, part sale. See 1.1001-1(e) and 1.1015-4.


Treas Reg 1.1001-1(e) if the adjusted basis of the rental prop is lower than the debt assumed by the donee, which is unlikely unless it was acquired a while ago and there was a cash-out refi or something.

Net gift would be 700k. Basis = 800k.

Is there a tax reason for this gift or whats up? Why transfer now and not wait for step-up? Is the estate tax going to be an issue? If not, what about also adding a life estate on the title in order to get a step-up?



Thank you all! Husband doesn't trust the much younger wife and the husband has a terminal illness which may mean he may die within 5-10 years.



Makes sense to give it to the kids then. You probably already have all the separate vs community property issues figured out so I'll assume that this is separate property and it's not in a living trust since that would preclude needing to gift it. Maybe he could put it into a separate property trust and then just leave it to the kids for full step-up. If he will be dying soon then definitely try to set them up for a step-up in basis. Either a revocable trust or do a gift with a retained life estate for the father or something. Section 1014(b)(9) allows a step-up for property if the property is included in the father's estate, which it would be under section 2036 with a life estate. He just needs the "right" to use it or designate who can use it. He doesn't need to actually use it.
 

#9
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Interesting. I will look into these options!!
 


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