Home, Land, Property Buying and Selling - Quitclaim Value Amount? In Texas

Most Quitclaims I see have a dollar amount. A recent article I read stipulates that a Texas deed needs a reasonable figure for the deed to be valid.

Here's my quandary. I am transferring a house (via quitclaim) from a family members sole ownership to joint between myself and her. I have paid all of the costs since day 1, she has a mortgage on the property. What do I put on the deed? The original purchase amount (therefore no profit to her as far as IRS), the current balance (increased profit impacting my income taxes) or something else.

Also, are there any pitfalls I need to avoid in order to reduce future title problems, we will be selling the house a few months after the transfer is complete for significantly more than the original purchase price.

Most Texas deeds read "Ten Dollars and other good and valuable consideration..."

The pitfall is that if the mortgage company finds out, and there is a "due on sale" clause in the mortgage then the mortgage company may call the loan due immediately. So, do this with the consent of the mortgage company.

Technically, the person on the deed really does not have title to the property, the trustee does. She would not have the legal right to convey anything other than her rights under the mortgage.

My biggest concern is that this will cause problem with the IRS. Here's the background (round numbers):

Purchase price $50,000 (3 years ago)
Current balance $40,000
Current Market $100,000

So, say it sell for $100k, will family member be responsible for income taxes on the $50k profit, will she and I be responsible for $25k each or would we be responsible for $99,990 as that would be the profit as that point ($100k-$10).

Taxes will have to be paid as the family member will be selling her residence in the next year or so and will need the tax benefit on the profit on that house much more than the measly $50k on this one but I will not have had ownership for the required 2 years (eventhough I paid the note) to claim the benefit.

This may be simple and I might not be getting it but I've learned not to mess around with the IRS but I don't want to pay them anymore than I am repsonsible for.

If you're going to be "selling it a few months after the transfer", why are you bothering with this extra step? I wouldn't do it.

You also say that this "family member" (if it's spouse, just say so!) will be selling another "residence" within a year. If this is a rental house, nothing matters, tax will be due on the gain. If it's a residence also then you'll have to wait two years to get the section 121 (2/5 years) primary residence exclusion.

If as I suspect (it sure sounds like) this is a rental then here's your/her gain.

Purchase price
minus depreciation (no choice, you have to deprectiate)
plus capital improvements

Equals net basis

Sales price MINUS net basis = profit. Profit will be taxed as Long Term Capital Gain, as it's been owned for more than one year. IIRC the current rate on that is 15%

Then you'll have to "recapture" the depreciation taken and pay the (I'm pretty sure it's) 25% tax on it.

Mortgage balances have nothing to do with taxable gain.

If I've misinterpreted anything please let me know and we'll work from there.

frank

Thanks Frank, the long and short of it is that my credit was shot when the house was purchased 3 years ago. The mortgage was taken out in a relatives name as was the deed, I paid the closing cost and all payments since then. The house was purchased at about $40k under market.

I am being relocated at someone else's expense. They are going to pay for selling my house but I'm not on the deed right now. I need to be on the deed at the time of the sale for them to pay for it.

I have no problem with the taxes as they will be owed anyway, I just want to make sure that I'm not adding an additional tax burden by stating that we only paid $10 for it. Maybe I should state that we relative and I paid relative the original amount and thus tax burden would be the same. maybe I'm just lost.