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Subject Author Date
Basis of Property Purchased For $1 From Parents Knarc 03-02-2008
Posted by Knarc on March 2, 2008, 12:20 am
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 Would the purchase of a residential property for $1 from parents be
considered a gift? The property had a FMV on that date of ~$100K. So
would the basis of the purchaser be the basis of the donor (i.e. parents)?

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Posted by Dick Adams on March 2, 2008, 12:54 am
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> Would the purchase of a residential property for $1 from
> parents be considered a gift? The property had a FMV on
> that date of ~$100K. So would the basis of the purchaser
> be the basis of the donor (i.e. parents)?

It is quite obviously a gift. But an IRS auditor would
almost certainly put your basis at $1 because that is
what you paid for it and then go after your parents for
not filing a gift tax return.

Why not just a straight gift? Why not but it from them,
make monthly payments, and have them forgive the principle
one year at a time?

Dick

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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2007) - All rights reserved. >>
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Posted by Arthur Kamlet on March 2, 2008, 1:25 am
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>
>> Would the purchase of a residential property for $1 from
>> parents be considered a gift? The property had a FMV on
>> that date of ~$100K. So would the basis of the purchaser
>> be the basis of the donor (i.e. parents)?
>
>It is quite obviously a gift. But an IRS auditor would
>almost certainly put your basis at $1 because that is
>what you paid for it and then go after your parents for
>not filing a gift tax return.
>
>Why not just a straight gift? Why not but it from them,
>make monthly payments, and have them forgive the principle
>one year at a time?


First we should clarify what makes something a gift.


The difference between FMV and the $1 paid makes this a gift.

That's true even if the parents neglect to file a ift
tax declaration.

Assuming the property has appreciated since the parents
acquired it, their basis becomes the child's basis and their
acquisition date is child's date.


If the FMV as actually lower than parent's basis, the
property will carry along a dual basis until sold.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
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<< to this newsgroup as well as our anti-spamming policy >>
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Posted by knarc on March 2, 2008, 8:13 am
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Dick Adams wrote:
>
>> Would the purchase of a residential property for $1 from
>> parents be considered a gift? The property had a FMV on
>> that date of ~$100K. So would the basis of the purchaser
>> be the basis of the donor (i.e. parents)?
>
> It is quite obviously a gift. But an IRS auditor would
> almost certainly put your basis at $1 because that is
> what you paid for it and then go after your parents for
> not filing a gift tax return.
>
> Why not just a straight gift? Why not but it from them,
> make monthly payments, and have them forgive the principle
> one year at a time?
>
> Dick
>
Thanks for the reply. Sorry if I wasn't clear.

Property was sold to 3 siblings for $1 approximately 10 years ago. You
are correct that no gift tax return was filed. Parents are now
deceased. Property was not used as a residence by any of the siblings,
nor was it rented. A child of one of the siblings was using it as a
residence rent free but paying all of the expenses. That child has now
purchased the property from the 3 siblings at a near market rate and I
am attempting to determine the basis for this sale.

I thought pub 551 was fairly clear that in the situation where a
property was acquired by gift and at the time the FMV exceeded the
donor's basis that the donor's basis was passed to the recipient of the
gift.

However, one of the siblings has a tax preparer telling them that the
basis should be the FMV on the date of the gift. I don't agree and my
client (a different sibling) obviously wants to use the FMV suggested by
the other preparer.

Knarc

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Harlan Lunsford on March 2, 2008, 4:46 pm
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knarc wrote:
> Dick Adams wrote:
>>
>>> Would the purchase of a residential property for $1 from parents be
>>> considered a gift? The property had a FMV on that date of ~$100K.
>>> So would the basis of the purchaser be the basis of the donor (i.e.
>>> parents)?
>>
>> It is quite obviously a gift. But an IRS auditor would
>> almost certainly put your basis at $1 because that is what you paid
>> for it and then go after your parents for
>> not filing a gift tax return.
>>
>> Why not just a straight gift? Why not but it from them,
>> make monthly payments, and have them forgive the principle
>> one year at a time?
>>
>> Dick
>>
> Thanks for the reply. Sorry if I wasn't clear.
>
> Property was sold to 3 siblings for $1 approximately 10 years ago. You
> are correct that no gift tax return was filed. Parents are now
> deceased. Property was not used as a residence by any of the siblings,
> nor was it rented. A child of one of the siblings was using it as a
> residence rent free but paying all of the expenses. That child has now
> purchased the property from the 3 siblings at a near market rate and I
> am attempting to determine the basis for this sale.
>
> I thought pub 551 was fairly clear that in the situation where a
> property was acquired by gift and at the time the FMV exceeded the
> donor's basis that the donor's basis was passed to the recipient of the
> gift.
>
> However, one of the siblings has a tax preparer telling them that the
> basis should be the FMV on the date of the gift. I don't agree and my
> client (a different sibling) obviously wants to use the FMV suggested by
> the other preparer.

You may disagree with that other tax preparer in good conscience, too.

ChEAr$,
Harlan Lunsford, EA n LA

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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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