The IRS has begun checking land records in certain states, including North Carolina, to compare uncompensated, mainly intra-family gifts of real property to filed gift tax returns. Tax Code Section 6501(c)(3) specifies that, “[i]n the case of failure to file a return, the tax may be assessed . . . at any time.” There may be tax assessment and civil penalties. The government can pursue taxpayers criminally for failure to file a gift tax return.
Code Section 7203 criminalizes the willful failure to file a return. Section 7203 has been applied to gift tax returns. Generally, gifts of any property over the $13,000 annual exclusion should be reported on a federal gift tax return for the year. The IRS is reviewing the gift tax returns for gifts of real estate. It is important to consult with a professional regarding a gift of real estate as to the tax implications. Considerations include income (capital gains) tax issues. For North Carolina real property, gifts prior to 2009 must be reported on a North Carolina gift tax return as well, and any applicable tax paid. The IRS announced recently that the amount of the estate tax exemption will increase next year. Recently the IRS has detailed the following: “For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount will be $5,120,000, up from $5,000,000 in 2011. For Special Use Valuation for qualified real property, the aggregate decrease in the value of the property resulting from the election cannot exceed $1,040,000, up from $1,020,000 for 2011”.
The annual exclusion for gifts will remain at $13,000. Similar to adding a name on a bank account, the addition of a name on a Deed for real property may have non-tax consequences. In the event one of the joint owners of the real property is involved in litigation, then a lien may be attached to the real property. If the original owner adds one beneficiary to the Deed of the real property, and excludes other heirs, by adding one and not all of the beneficiary’s names to the Deed, the other beneficiaries will be effectively disinherited from that gift at the time of the demise of the original owner. Even if the surviving joint owner agrees to add the names of the other beneficiaries on a new deed later on or agrees to give the other beneficiaries a share of the proceeds from the real property after sale, there may be gift tax consequences.
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