17 Sep We’re selling our home to our son for cheap. Is it a gift?

Q. My wife and I have agreed to sell our house to our son. The bank-appraised value of the property is $700,000 and we are selling it to him for $340,000, which is the amount of the mortgage. How will the $360,000 be treated and are there tax consequences?
— Dear old dad

A. It’s very generous of you to sell your home to your son at such a steep discount.

But you’re right, this would be considered a gift.

The amount of the gift would be the excess of the value ($700,000) over the amount paid ($340,000), or $360,000, said David Ritter, chair of the tax practice at Brach Eichler in Roseland.

He said the gift is reportable to the Internal Revenue Service on IRS Form 709 by April of the following year.

The good news is that there’s probably no tax due.

“The value is a gift, but the available federal annual gift exclusion and the federal basic exclusion amount will be applicable,” he said.

Here’s what that means.

First, a person is allowed to gift $15,000, adjusted for cost of living over time, to a person each year without even reporting the gift, Ritter said.

If the gift to a single person exceeds $15,000 then IRS Form 709 must be filed to report the gift.

“When reporting the gift, the value of the gift is applied against the available federal basic exclusion amount of the donor – the person making the gift – and only if the gift value exceeds the available federal basic exclusion amount is there a tax payable,” he said. “The current federal basic exclusion amount is $11.4 million per person.”

New Jersey does not have a gift tax and there would be no filing with New Jersey, he said.

Before you make the move, read this story about the difference between gifting a home and leaving it as an inheritance.

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This story was originally published on Sept. 17, 2019.

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