Obtaining Property as a Gift
Who doesn’t love the feeling of receiving a gift, especially a gift of real estate? In today’s world, gifting property has become a common practice among family members and friends.
Gifting property not only adds to one’s assets but also provides economic benefits and helps in tax planning. The process of gifting property, however, can be complex and involves legal procedures. This article will provide insight into the process of obtaining property as a gift.
What is Gifting Property?
Gifting property is when someone transfers the ownership of a property to another person without any monetary compensation. This transfer of ownership is done through a written deed of gift, which is a legal document that outlines the terms and conditions of the transfer. The donor is the person who gifts the property, while the recipient is the person who receives the property as a gift.
Types of Property that can be Gifted
Almost all types of properties can be gifted, including land, houses, apartments, commercial property, jewelry, and even vehicles. It is important to note that the gift cannot be conditional, which means that the recipient cannot be required to do anything in return for the gift.
Legal Procedures Involved in Gifting Property
The process of gifting property involves several legal procedures to ensure that the transfer of ownership is legal and valid. The following are the legal procedures involved in gifting property:
1. Drafting of Deed of Gift: A deed of gift is a legal document that must be drafted to transfer ownership of the property. The deed of gift outlines the terms and conditions of the transfer, including particulars of the donor and recipient, the description of the property being gifted, and any other terms or conditions of the transfer.
2. Registration of Deed of Gift: The deed of gift must be registered with the relevant local authority. The registration process involves verification of the identity of the donor and recipient, verification of the property being gifted, and payment of stamp duty.
3. Transfer of Possession: Once the deed of gift is registered, the gift is complete. The donor must transfer the possession of the property to the recipient. This is typically done by handing over the keys to the recipient.
4. Payment of Taxes: While gifting property does not involve any monetary compensation, it is still subject to certain taxes. The recipient must pay gift tax on the fair market value of the property being gifted. The amount of gift tax varies depending on the value of the property being gifted and the relationship between the donor and the recipient.
Benefits of Gifting Property
Gifting property has several benefits, some of which are discussed below:
1. Economic Benefit: Gifting property can be the start of an investment portfolio for the recipient. It can also be used as collateral for taking out loans and mortgages, which can help the recipient obtain financial stability.
2. Tax Planning: Gifting property can provide tax benefits. The donor can avoid paying capital gains tax on the appreciated value of the property by gifting it, while the recipient will only be liable to pay gift tax.
3. Estate Planning: The process of gifting property can be beneficial for estate planning. By gifting property during their lifetime, the donor can ensure that their assets are distributed as per their wishes and avoid disputes that may arise after their death.
Challenges of Gifting Property
While gifting property has its advantages, it also brings some challenges, including:
1. Legal Procedures: The legal procedures involved in gifting property can be complex and time-consuming. It is important to ensure that all the legal procedures are followed correctly to avoid any legal complications.
2. Tax implications: Gifting property can be subject to tax implications and it is important to be aware of these before gifting property. It is advisable to consult a tax expert or lawyer to understand the tax implications of gifting property.
3. Maintaining Property: Gifting property means that the recipient becomes the new owner and is responsible for maintaining the property. This can be a challenge if the recipient is not financially or otherwise capable of maintaining the property.
Conclusion
Gifting property is a great way to provide economic and investment benefits, as well as tax and estate planning advantages. However, the process of gifting property can be complex and involves several legal procedures. It is important to ensure that all the legal procedures are followed correctly to avoid any legal complications. While gifting property has its advantages, it also has its challenges, including tax implications and property maintenance. It is advisable to seek professional advice before gifting property and to ensure that all the legal procedures are followed to avoid any issues in the future.
Ownership to real property can be acquired through a gift. In order to do so, proper execution and a delivery of a deed to the property is required.
Once the transaction is finalized, the gift is irrevocable. However, the promise to give a gift is revocable in most cases. Exceptions to the revocation of a promised gift usually depend on the scenario.
For example, if Pavel promised Alexander a gift and decided to revoke last minute, it is okay so long as Alexander did not take any actions based on the promise of the gift itself. On the other hand, the revocation will not be upheld if Pavel promised Alexander the gift of real property and Alexander began purchasing appliances or insurance on the property prior to the conveyance.
In this case, Pavel may either give the gift, or pay the damages Alexander incurred due to the anticipation of the gift itself. With the given scenario, the injured party recovers costs based on detrimental reliance, which means the anticipation or reliance on the promise of the gift.
According to gift tax rules, gifts one receives are not considered income, regardless of the amount of the gift. Gifts do not need to be reported on your income tax in any way under any circumstance of IRS Gift tax. Deciphering between whether something is a gift or not, is an issue of its own.
This rule applies strictly to real gifts. Meaning, if an individual gifted you real property either during his lifetime, or after through his will, it does not need to be reported. On the contrary, if a gift was given in return of a service provided by the recipient of the “gift;” that is not referred to as a gift under gift tax rules.
If I was given a 4 family home as a gift from my uncle, and three of the sections are for rent, the gift is now bringing me income. Any income acquired through gifts must be reported.
There are no tax deductions on gifts even thought they are tax free. However, gifts given to qualified charities are tax deductible. According to IRS gift tax rules, the recipient of a gift does not need to report it under income tax, and is not charged the gift tax. The donor is responsible for the gift tax.
Any gift provided over the annual exclusion is taxed under gifts; underneath the exclusion amount, the gift is tax free. Giving and receiving gifts from your spouse are never taxed. If you give more than the annual exclusion amount to one person in a taxable year you will be required to file a gift tax return.
