If you live in Silver Spring, Rosemary Hills, DC Metro or Virginia and you've recently gifted a relative with real estate, the IRS may have its eyes on you. The Wall Street Journal reports that the government agency is fighting to use land-transfer records to discover un-reported gifts of real estate between family members.
Recent legislation has raised to $5 million the limit on how much a person can gift in a lifetime without paying a gift tax. However, a gift to one person of more than $13,000 is supposed to be reported to the IRS so that appropriate transfer taxes are paid. Apparently, many people are "neglecting" this, so the IRS is seeking them out by examining state land-transfer filings.
An IRS document from December 2010 showed the agency had examined 323 taxpayers in the previous two years for not reporting possible gifts. Currently, 217 are being looked at and 250 more are up for possible review. So far, 97 cases have failed to report gifts and 12 have paid taxes or penalties because the gift put the donor over the lifetime gift credit maximum.
Maryland and Washington, DC have not yet provided their records for review. Virginia, however, has turned over its land-transfer information, and IRS documents show a noncompliance-in-reporting rate of 90 percent for the state. Other states providing records include Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Washington and Wisconsin.
Everyone needs to be aware that real estate gifts/transfers to family members are not exempt from the tax reporting rules. If the property is valued at over $13,000, you must file a gift-tax return, even if you're still under the $5 million lifetime exemption. And it seems that the IRS is taking steps to make sure you don't forget.
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