Q: If someone transfers a house to me using a quit claim deed, do I owe income tax? Does the giver owe a gift tax?
A: If you win the house in a lottery and you receive the home by quit claim deed, you will owe tax on your winnings.
But for vast majority of people who receive a home by quit claim deed, the person that receives the home doesn’t have to pay any income tax. But if you didn’t pay for the home, your “purchase price” or your “cost” of the home might be what the prior owner of the home paid for it. If you receive the home from your parents and they paid $50,000 for the home, when you receive the home, your cost basis will be the same $50,000.
If you sell the home before owning it for one full year, and you sell if for more than $50,000, then you’ll probably have to pay taxes on that difference.
Transferring homes from parents to children using a quit claim deed is usually not the best method of wealth transfer from a tax perspective. It does allow a parent to feel good about keeping a home in the family while they are alive, but there are other methods that parent can use to avoid the many tax issues that can arise and haunt the child later on when the home is sold.
On the other hand, depending on the value of the property, the giver might owe gift tax. Please consult with your tax preparer.