Legal Question in Tax Law in Illinois

Income Taxation of House as Gift

My husband and I have lived in

in a house for 5 years. Our in-laws

moved in with us, and we added them to the house title with us.

Then we removed our names in a quit claim deed so that the house

is only in my in-laws' names. My in-laws then took over our loan of 220,000. Is this considered a gift? If so, when can my in-laws sell the house: 2 years from when they were first added to the deed, or 2 years from when they were alone on the deed? And what will its basis be

when they sell it? Is it our original basis from 5 years ago, or is it the

current loan?

***Also, is there a way to undo this?

We realized that we should have done a sale instead. Is there any

hope of cancelling the gift and doing

an actual sale with a closing? ***

My in-laws took out a home equity line of credit once the loan was in their names, so that right now the

debt on the house is at 310,000.

What happens if the house goes into forclosure? Will the entire 310,000 be considered income to my

in-laws? Is there a way to avoid this since my in-laws did not really receive this money. Please help....

Also, should we have paid a gift tax

if it can't be undone?


Asked on 6/12/07, 1:06 am

1 Answer from Attorneys
Cyndi Perez Trostin

Re: Income Taxation of House as Gift

You don't say when you originally added them to the title, and how soon after you quitclaimed the house to them, with them assuming the mortgage.

There may be more than one reportable gift here since by adding someone to the title is "gifting" them an interest in the property (even though no money is changing hands).

You should have an estate planning or tax attorney review this transaction for you and your in-laws to be sure that it is transferred and reported correctly.

Good luck to you.

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Answered on 6/12/07, 3:41 pm


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