Quitclaim and Grantors Tax Implications

1 Reply

I thought I would throw this out there as I didn't see it addressed in any of the archives.  

The Grantor of a property is asking me what, if any tax consequence, would occur if she transfers the deed to me via a quitclaim deed.  The transaction does not have the Grantor receiving any funds, other than the customary $10 consideration.  

The property will have a little equity at the time of transfer (approx $20K), however, the property is largely encumbered with a mortgage balance of $170K.  The Grantor understands that she is still liable for making the payments, and I will assume that responsibility until renovating the home and selling it outright for a higher price.  

Based on this information, what taxes would be due by the Grantor under this scenario, if any?

Thanks,

Bruce 

The instrument used is not what creates the tax liability.  The transaction itself is.  So in that sense, a QCD transaction is taxed the same as a Warranty Deed or Special Warranty Deed.  The instruments only serve conveyance of title not personal taxation.

Real property sales generally have an excise or transfer tax born by the seller and paid to the county or taxing authority at the time the new instrument is sent to be recorded.  The cost can be paid by either party per contract but is formally recognized as a seller's liability.  

I am assuming you two do not have any relation to each other.  If you do, this may not qualify as an arm's length transaction then you should have a tax pro talk to you about structure so as to avoid the transaction looking like a gift. 
 
Moral of the story, the best answer, since tax scenarios can be different among different parties and circumstances, you both should speak to a professional tax person to understand your liability.  You should steer clear of making a formal statement to her that everything will be fine because if it isn't you may get yourself in hot water.

One other side note, as you mention that she understands the liability that the loan is still hers, any forgiveness of principal resulting in a short sale or short pay (refinance) will result in a tax liability for her.  I acknowledge it seems the plan is to sell for more than what is due and if that occurs and no short is needed, this point is moot.  

One other side note, the "in consideration of $10 and other good and valuable..." is not the "customary" price paid for any asset, it is the legalize needed to have a valid contract which includes offer, acceptance and "consideration".  

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