02 Nov What happens with taxes if I transfer this home to my son’s name?

Q. I paid cash for a house for my adult single son. My wife and I live in a separate home. My son pays me for all the home’s bills and is paying me back for the house with a no interest loan. However, all the home’s bills and the deed are in my name. What are my federal and New Jersey tax liabilities for transferring the deed and bills to my son’s name?
— Trying to plan

A. It was very generous to assist your son with the purchase of a house.

We’re glad to hear this arrangement has worked out so far.

First, there are no implications to change the bills into your son’s name, said Joseph Sarnecki, a certified financial planner with U.S. Financial Services in Fairfield.

But there are many items to consider before transferring the home into your son’s name.

Sarnecki said the transfer of this into your son’s name could result in a gift.

Some states impose a gift tax, but New Jersey does not, he said.

The federal estate and gift tax exemption amount for 2021 is $11.7 million per person, or $23.4 million per married couple, less any lifetime gifts in excess of the annual exclusion Sarnecki said.

The annual exclusion is $15,000 per person, or $30,000 per couple.

“Hence, you and your wife can gift $30,000 a year to your son without filing a gift tax return or eating into your exemption amount,” he said. “Gifts over the annual exclusion but less than the lifetime exclusion of $11.7 million require the filing of a federal gift tax return, but no gift tax will be owed.”

For estate tax liability purposes, these gifts will be included in your federal taxable, he said.

Let’s assume the house is worth $500,000 and you transfer the deed to your son. You would need to file a gift tax return, but no taxes would be owed, assuming you are under the $11.7 million exemption amount, Sarnecki said.

You indicated your son is paying you back for the house.

Assuming this is the case, and no official legal document is in place, another option would be to officially loan him the funds to purchase the house, Sarnecki said.

“As you are charging 0% interest, only the forgone interest would be considered a gift,” he said. “If that foregone interest is less than the $30,000 annual exclusion, no gift tax returns are required.”

Given that there are many ways to address the transfer, you should speak with an attorney before taking any action to ensure there are no negative impacts for your estate or tax planning.

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This story was originally published on Nov. 1, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.