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  • Over 20 years ago my parents gifted me 50% ownership of their home. There was no exchange of money.
  • They now want to sell the house and downsize.
  • We live in California, they've owned the house for 35 years, and there will be over $1.2M in net gains.
  • I do not live in the home and do not want any of the sale revenue.
  • I want to gift my ownership portion back to them.
  • The escrow office says I can sign a quitclaim deed same day as the close of escrow, and that this is done often. My tax accountant friend disagrees and says it will look like we're trying to reduce our tax burden.
  • I'm not trying to avoid taxes. I consider the house theirs and they want to downsize without causing a financial burden on me. I've never received any investment income from the property. I have a separate home which is my primary residence.
  • The new home will be held in trust and I will be one of two beneficiaries. The current home is not in a trust.
  • My parents are both seniors.

Can this be done, as the escrow office describes? Shouldn't I be able to file this as a gift with the IRS? Thank you.

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    Why did they gift you half of the home 20 years ago? I haven't researched this for an answer (as such leaving just as a comment), but it seems that determination that you are gifting your ownership stake for purpose of reducing taxes, may be impacted by why it was gifted to you in the first place. If the gifting done at that time also achieved some financial gain to your parents (through taxes or whatever), then perhaps this might be viewed as never having been "gifted" at all, since you later "gifted" it back. Just a thought.
    – Grade 'Eh' Bacon
    Commented Jun 17 at 20:00
  • You said in the question "I've never received any investment income from the property." was it ever a rental property?
    – mhoran_psprep
    Commented Jun 17 at 20:15
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    Your tax accountant is right, this is fishy.
    – littleadv
    Commented Jun 17 at 20:58
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    I would get yourself a real tax accountant who you can pay to look at this properly.
    – DJClayworth
    Commented Jun 17 at 23:30
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    The escrow agent and the tax accountant don't disagree; they're just looking at different aspects of the transaction. You can sign a quitclaim deed any time you want, and that will transfer your interest in the property. Whether that's a good idea tax-wise is a separate question.
    – Pete Becker
    Commented Jun 18 at 13:16

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You can certainly gift back your share of the home to your parents before they sell it. That is very clear to me. However, a quick claim deed might not work. I am not familiar with the laws of California in this area. I would talk to a lawyer about it.

The question, I think you want to ask is, can you gift back your share of the home to your parents without occurring any gift tax liability? I suspect, but I am not sure, that if they simple put your name on the deed without filing a gift tax return then it was not a completed gift and they can simple take your name off the deed. However, if you really own 50% of the house and you gift it back to them there is going to be a gift tax issue. If so, you may have to file form 709.

If your goal is to give your parents 50% of the house you can give each of your parents 25% of the house. That way, you get two annual exclusions. If you are married you can have your wife gift some of the house also and get four annual exclusions.

Even if you have to file form 709, it is very likely that you will not have (depending on what kind of gifts you have given in the past), to pay any money. However, it will generate an add back which might result in you paying Federal Estate tax (and maybe state Estate tax also) when you die.

I would strongly urge you to seek professional guidance in this area from a qualified CPA (who understands the gift tax laws) or a lawyer with a background in tax so that you can get the proper guidance. There are some traps here and you should not rely on the advice from stranger on the internet. You need professional advice.

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    +1. Wish I could give +1million to "There are some traps here and you should not rely on the advice from stranger on the internet. You need professional advice." These are so very state and local specific, OP needs to pony up for expert advice here.
    – R. Hamilton
    Commented Jun 20 at 13:59

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