The idiom “pigs get fat, hogs get slaughtered,” is directly relevant to the current, generous gift tax exemption. During 2011 and 2012, donors may gift up to $5 million in assets without paying any federal gift tax. The limited window of opportunity, depressed real estate prices, and liberal exemption amount are enticing factors for donors to transfer highly appreciated and/or highly valuable real estate. Typically, the giver transfers the real estate to one or more family members.
Despite the fact that gift tax is not owed on many of these real estate transfers, the giver must report any gift in excess of $13,000 to the Internal Revenue Service (“IRS”). The donor must file Form 709 to report U.S. gift taxes to the IRS. Irrespective of whether tax is due and payable or the transfer is made to a family member, Form 709 must be filed for gifts in excess of the annual exclusion amount.
A recent Wall Street Journal article noted that the IRS is scrutinizing gifts of real estate to family members. The IRS has obtained real property transfer information from 16 states. The small sample size revealed noncompliance rates in excess of 50% which will likely spur on additional IRS examinations of real property. While this is a favorable time to make gifts of real estate, seek assistance from trusted counsel to properly transfer real estate.