Did you transfer your home or property to your children? Even if they weren’t technically gifted, did you “sell” them for a dollar? If you failed to file a gift tax return, there may be an unwelcome IRS letter arriving in your mailbox soon. The IRS is currently scrutinizing real estate transfers in 15 states – yes, New Jersey and rest of tri-state area included – with additional states likely to be added. It has found that 60-90% of gratuitous non-spousal real estate transfers were not reported on gift tax returns. Perhaps you are thinking “OK, so I’ll be more careful about this in the future but unless the IRS audits me I’m fine”-think again! If you make future taxable gifts requiring the filing of gift tax returns, those returns must disclose your prior gifts. If you do not include a gift from a prior year, the future return is false.
While it does require effort and expense to file your 2011 gift tax return, the fact that there is a lifetime $5,000,000 gift tax exemption can allow you to rest assured that you won’t be facing a tax liability if you stay under that amount. The IRS is primarily targeting transfers before 2011, as there was only a $1,000,000 gift tax exemption in prior years. It is important to note that this lifetime exemption is cumulative; meaning that if you transferred a property worth $800,000 to a non-spouse in 2008, and then a $300,000 property in 2010, the $100,000 excess over the gift tax exemption would be subject to gift tax.