A very generous father contacted me. He wanted to buy a house for his married son but didn’t want the house to become community property. He wondered if there was a way to ensure that the gift to his son was classified as separate property.
In Texas, all property is classified as community or separate property depending on when and how it was acquired. Texas defines property an individual owns before marriage or which that individual inherits or receives as a gift as separate property. It presumes that property that a couple acquires during a marriage is community property, except if a spouse received the property as part of an inheritance or gift.
Therefore, if the father makes a gift to a child, even a married child, that gift is by definition separate property. However, to ensure that the property remains his son’s separate property, he should list only his son’s name on the deed.
This is important because if the father intends to purchase a house for his son, but the deed names both the son and daughter-in-law as joint owners, then he would have made a gift of half the property to his daughter-in-law.
Depending on how much the property is worth, it is important that the father discuss the tax ramifications of the gift with his CPA.
Generally, each American taxpayer can give up to $15,000 to an individual recipient in one year without any gift tax consequence. If the gift exceeds $15,000, it will be necessary to report the gift to the IRS. However, that does not necessarily mean that gift taxes will be due.
In addition to the annual gift tax exclusion, taxpayers have a lifetime exemption of $11.7 million in 2021. By filing the necessary reports to the IRS, taxpayers can simply claim some of their lifetime exemption, which will reduce the available exemption at death. Since most of us will not have taxable estates when we die, we will have plenty of cushion to avoid paying gift tax.
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