What’s the best way to transfer a home title to a family member who’s been living in the home? Hint: A quitclaim deed may not be sufficient enough.
Q: Hi Ilyce and Sam! We have a question about what’s the best way to transfer a home title to a family member who has been living in the home? In 2009, my wife and I bought a fixer-upper on the auction block in a small town in Alabama so my brother and his wife and son had a place to live. My brother is a darn good carpenter who went through this house several times and convinced me to buy it. And now my wife and I own it free and clear with only our names on the deed.
Quitclaim Deed Archives – Read more about quitclaim deeds and title transfers
We purchased it with a home equity loan against my current primary residence here in Maryland. We have never charged my brother rent. He lived there for free but paid the utilities, taxes, association fees, homeowner’s insurance and performed all the necessary repairs and maintenance.
The intent was to eventually sell the house to my brother for only my out-of-pocket costs. That would include the interest I paid on the home equity loan. Any improvements to the home (there were many, all completed by my brother) were paid for by my brother and were his to keep.
Transfer a home title to the home via quitclaim deed
The house is now worth way more than what we paid and our out-of-pocket costs total about $75,000. My brother has paid me back the $75,000. Can’t I just add him and his wife to the deed and then my wife and I would sign a quitclaim deed, thereby handing ownership over to him?
A: Thank you for being a loyal reader of our columns. The simple answer to your question is “Yes.” The deal you and your brother struck seems to have been satisfied. Your brother paid you back what he owed. Now it’s time to sign over the property.
We would have liked for you and your brother to have had something in writing detailing your relationship and the deal you both struck. Did you have a handshake deal for the home? Is there a paper trail?
Put title transfer deal terms in writing
It seems that you’ve sold the home to your brother but have not yet followed up with the paperwork to put him in title. If you had papered your arrangement, it would have said something like this: “I own the home but you will pay me over time for the home. We are setting the sales price of the home to that which equals what I paid for the home plus all other expenses that I may pay relating to the ownership of the home. You can complete the ownership of the home when you have paid me all amounts that are due to me. When you pay me all that money, I will convey title to you.”
This arrangement is similar to what some people would call a contract for deed or installment contract for deed. Now that your brother has done what he needed to do under the arrangement, you need to do your part.
Use a warranty or quitclaim deed to transfer title
You and your wife can transfer a home title to your brother with a warranty or quitclaim deed. Either document will be sufficient to transfer your ownership interest in the home to your brother and his wife. Either form is sufficient. But some recorder of deeds offices will not accept a quitclaim deed to transfer title.
There is a small difference between these two documents. Warranty deeds affirmatively state that you own the home and are conveying your interest in the home to your brother and his wife. A quitclaim deed only says that you are conveying your interest in the home to your brother and his wife. Recorders of deeds and filing offices prefer to have warranty deeds for the transfer of ownership. Why? Because the quitclaim deed can be used when someone doesn’t own any interest in the home and is used to settle claims of interest and disputes, .
An attorney can help draft the deed to transfer title
You may need someone to help you draft the documents to make sure that your ownership of the property is properly conveyed to your brother and his wife. And, there might be other paperwork to file with the deed. You sold the home to your brother for $75,000 and any paperwork related to the sale may need to show that sales price. You and your brother may have some transfer taxes to pay may have other paperwork to file relating to the sale. If it seems like too much to get done on your own, you can hire a title or escrow company or real estate attorney to help.
Once you record the deed and other documents relating to the deed, you will have satisfied your side of the deal and your brother and his wife would end up owning the home.
Title transfer is a sale of the home
As a side note, did you keep a record of your costs and expenses relating to the home? The IRS will have an interest in taxing any profits you have made on the sale. Your brother only reimbursed you for the costs. So, you shouldn’t have any profit or have to pay taxes on the sale of the home. On the other hand, now the home is worth a lot more than the $75,000. The difference between it’s actual value today and the sales price can be an issue at tax time.
The IRS could claim that difference is a gift to your brother requiring a filing with the IRS. But if you have sufficient documentation to show that the sale was part of an installment sale of the home, it shouldn’t be considered a gift. We hope your brother kept the paperwork to show what he’s put into the home. When he sells the home, he’ll know what his cost basis. (Basis is the IRS term to figure out the starting point in determining the profit on the sale of the home.)
Read more about title transfers and quitclaim deeds:
Does a Quitclaim Deed Override a Will?
Quit Claim Deed: Real Estate Loss Or Financial Protection?
Using A Quitclaim Deed When Divorcing
How Can You Find Out If You Are Listed On A Trust?
The interest on the loan that is being reimbursed, in the transfer of title, is taxable ordinary income to the recipient even if there was no deduction for the interest as it was incurred. Moreover, the interest income should have been reported each year under some sort of an agreement that would satisfy the IRS imputed interest requirements.
Thanks for your comment.