Using a gift deed, you can transfer your home to a new owner. The transfer of a gift deed occurs among friends and relatives, or between donors and charities. The giver of the gift deed, formally known as a grantor or donor, conveys the home to the recipient or donee while the donor is alive.
The special hallmark of the gift deed is its transfer of real property between people with no consideration. Only use it if no money and nothing of value is given for the home. (Careful, though: to the IRS, a house sold for a dollar is still a gift.)
Here, we shine a spotlight on the gift deed from some specific angles:
- We’ll zoom in on two places where many of our clients and readers love to give: Arizona and Florida.
- We’ll discuss the tax implications of your gift deed.
- We’ll outline the alternative ways you can give your home away or transfer its inherent value to your loved ones.
So, if you’re feeling generous, read on!
Be sure your deed meets the requirements in your state. You’ll always find continually updated deed forms, including gift deed forms, on Deeds.com.
Gift Deeds in Arizona and Florida
Many of our readers have asked specifically about gift deeds in two states: Arizona and Florida. So, let’s take a look at how they work.
As in any state, Arizona and Florida recorders charge a fee, and they require several elements on the deed in order to record it:
- The property’s full legal description.
- Source of title.
- Key covenants and restrictions.
The way the title is vested is designated on every deed. The deed should be signed by co-owners, if any. Their spouses should sign too, so as to show knowledge and the release of marital rights — even though the spouses have no interest in the transferred property.
Arizona Gift Deeds
Arizona property law has several notable rules:
- State the grantor’s and grantee’s full name on the gift deed, along with their marital status and mailing addresses. Designate the vesting for the new owner(s): sole ownership, tenants in common, joint tenants, or community property.
- The default rule makes a transfer to multiple people into a tenancy in common, not a joint tenancy. But a conveyance to a married couple typically vests as community property.
- Sign the deed in front of “some officer authorized to take acknowledgments.”
- Record the deed at the recorder’s office of the county where the property is located within 60 days.
Gift deeds in Arizona do not require state gift taxes or transfer fees.
Florida Gift Deeds
A Florida home can be held by a sole owner, or by tenants in common, tenants by the entirety, or joint tenants. Rights of survivorship only occur in vesting by the entirety. By Florida’s default rule, co-owners who receive a home tenancy in common, and no rights of survivorship unless stated.
A Florida gift deed includes both parties’ full names and marital status, as well as the grantee’s mailing address. Notarize and promptly record the deed, with original signatures, with the home county recorder’s office, following county-specific rules and procedures.
As with Arizona, a Florida gift deed is not subject to state gift tax.
Federal Tax Implications of Your Gift Deed
A gift transfer is usually not taxable income for its recipient. As the grantor, will you owe gift tax? For your 2019 and 2020 tax returns, you get an annual exemption for up to $15,000 (or $30,000 for you and your spouse) for each recipient you give to. If your gift home is worth more than that, you’ll only need to pay tax on the overage, with some exceptions. Report the transfer through Form 709. The IRS website has a lot more on federal gift taxes.
Here are a few key points to know:
- You’re allowed to resolve the gift tax the same year you give away your home, or take it out of your lifetime exemption. As of 2020, you can give up to $11.58 million in gifts over your lifetime, tax-free. (A married couple giving together can double that.) Subtract the home value from the total value of your estate; your gift exemption will end up shrinking the allowed tax-exemption after you die.
- You can give up to your cap either during your lifetime or from your estate after death — without needing to pay either a gift or estate tax.
- Even though there is often no tax due for either the giver or the receiver, it’s wise to file a gift tax return. The statute of limitations on an IRS audit of the gift value starts running upon filing. Having an updated appraisal done is wise, too; it’s proof of the home’s worth at the time of the gift.
- If tax is due, the grantor should take care of that, or the IRS could go after the recipient.
Pro tip: Have you put off making a gift to spare your recipient hefty capital gains taxes because your home has shot up in value? Note that the IRS allows your recipient(s) to exclude up to $250,000 ($500,000 for a couple) of their capital gains from taxes if they live in the house at least two years out of a five-year period leading up to the date they opt to sell it.
Hot Potato: A Recipient May Refuse to Accept a Gift Deed
Let’s face it: the time is not always right for handling the responsibilities that come along with a house. If you’re at the receiving end of the deed but find yourself lacking the bandwidth to take it on, it’s OK to decline the gift.
What if the giver has recorded the deed anyway, without telling you? What if the person wanted to make you a secret gift or surprise you?
As sweet as that might sound, it’s a no-no. To be valid, the giver had to do three things: intend to give you an immediate gift; deliver control over the gift to you; and have your acceptance. If those criteria weren’t all met, there is no valid gift. Still, now you need to go to court to demonstrate that you never accepted the transfer.
Whether you, the intended recipient, are an individual or representing a nonprofit, refusing a deed makes sense if your due diligence reveals that the land will be a burden, not a benefit. Think about these factors before accepting the gift.
- Check the deed, title policy, and property tax documents. Is the donor the sole owner? Or are there co-owners who’ll need to consent?
- Are association fees, construction bills, taxes and insurance all paid? No problematic liens?
- Is the gift coming with a general warranty deed? If not, can the donor provide a gift agreement indemnifying the recipient for unknown defects?
- Could the property come with environmental liabilities?
- Would the new owner be eligible for the title insurance?
- Was the home professionally inspected and appraised?
- Will the necessary repairs and maintenance be worth the cost?
- Will the recipient be able to use and enjoy the property?
If you are not comfortable with a deed you have received, complete an irrevocable Disclaimer of Interest — such as this example, for Arizona. Like the federal disclaimer rule, Arizona’s rule gives the recipient nine months to disclaim a deed.
Alternatives to the Gift Deed
If you’re ready to pass your home to someone else, the gift deed might not be your only option. There’s also:
If you’re simply releasing property over to a co-owner or to a charity, you could use a quitclaim deed. Quitclaim deeds may still be subject to federal gift tax, but are tax-exempt when given to your spouse or an eligible charity. If any taxes are due or loans are outstanding on the property, resolve them before the quitclaim. And check with the charity in advance to be sure the quitclaim is appropriate for your donation of real estate.
The Cash Gift
Some owners, especially parents with children who’d prefer a gift of money, might opt to sell the home and give away the money received from the home sale. If so, consider spreading the gift over a few years. If you’re married, you may annually give up to $30,000 – $15,000 from each of you. No need to pay tax on a smaller gift.
The Living Trust
Want to have your house and give it too? There’s a trust for that. Parents can inhabit their home and save it for their kids simultaneously — but not through a gift deed. Put your home in a revocable trust, and its market value at the time of your passing will be applied as a stepped-up tax basis, potentially lowering your beneficiaries’ capital gains tax if they’ll need to sell the home.
See how trusts — revocable, irrevocable, and asset protection trusts — work here.
Properly completing a gift tax return requires substantial information about the parties involved, the type of property, and the way it’s being conveyed. Familiarity with gift provisions and generation-skipping tax rules is also important. Be sure your accountant or tax preparer knows of your plans, so you benefit from professional tax advice before you make your gift.