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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121150  
Subject: Real estate purchased before the wedding Date: 1/29/2000 5:12 PM
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A gift tax question: A friend and his then-fiancee bought a house (in California) in the spring of 1998. My friend supplied the entire $30,000 down payment, and they took title as joint tenants. The wedding went forward as planned about seven weeks later. Should my friend have reported half of the down payment as a gift to the woman who is now his wife? --Bob
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Author: JABoa Big gold star, 5000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26318 of 121150
Subject: Re: Real estate purchased before the wedding Date: 1/29/2000 5:43 PM
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Bob, since there's not much good on the TV, and since you already know I am not a lawyer or CPA:

Surely not, especially not in California. That had to turn into community property. So even if he is run over by someone in an SUV next week who is eager to get cigarettes from the local 7-11, it all passes tax free to his wife anyhow.

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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26320 of 121150
Subject: Re: Real estate purchased before the wedding Date: 1/29/2000 5:50 PM
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JABoa writes (in part):

That had to turn into community property.

I reply:

No, actually, it doesn't. Property acquired before marriage retains its status as separate property unless my friend affirmatively transmutes it to community property. If that didn't happen and he gets hit by that SUV, she only takes title through joint tenancy (and only gets the step-up in basis on half of the house).

In any event, I'm not sure it matters. Suppose they'd bought the property in 1997 and weren't married until 1998. Is there any question that the gift tax would have been triggered? The only reason I suspect it might not have been is that the transfer and the wedding happened in the same year. --Bob

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26466 of 121150
Subject: Re: Real estate purchased before the wedding Date: 1/31/2000 4:51 PM
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<<A gift tax question: A friend and his then-fiancee bought a house (in California) in the spring of 1998. My friend supplied the entire $30,000 down payment, and they took title as joint tenants. The wedding went forward as planned about seven weeks later. Should my friend have reported half of the down payment as a gift to the woman who is now his wife?>>

I believe so, yes. If your friend would have simply taken the house as his separate property originally and then "gifted" half of it to his new spouse AFTER the wedding, there would be no gift tax consequences (since gifts between spouses are unlimited and ignored for gift tax purposes).

But the gift is determined on the date of the gift. It's immaterial that the gift and the marriage took place in the same calendar year.

So...yes...I think that your friend has a bit of a problem...to the tune of a $15k gift that was made. $10k will be within the limitations, but $5k would be "taxable".

That's my view anyway...based upon what I'm reading.

TMF Taxes
Roy

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Author: elibortPrairiela One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26472 of 121150
Subject: Re: Real estate purchased before the wedding Date: 1/31/2000 5:18 PM
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<<A gift tax question: A friend and his then-fiancee bought a house (in California) in the spring of 1998. My friend supplied the entire $30,000 down payment, and they took title as joint tenants. The wedding went forward as planned about seven weeks later. Should my friend have reported half of the down payment as a gift to the woman who is now his wife?>>

I believe so, yes. If your friend would have simply taken the house as his separate property originally and then "gifted" half of it to his new spouse AFTER the wedding, there would be no gift tax consequences (since gifts between spouses are unlimited and ignored for gift tax purposes).

But the gift is determined on the date of the gift. It's immaterial that the gift and the marriage took place in the same calendar year.


Roy is right --- whether there is a gift or not is determined at the moment the transfer occurs. But, let me pose a hypothetical, in the nature of a defense to an IRS claim for the tax:

What would have happened if, during the 7 weeks between the transfer and the intended wedding, the couple had called off the wedding and decided to go their separate ways? Would she have had to give him back her half of the house? You law students out there --- what about those engagement ring cases?


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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26479 of 121150
Subject: Re: Real estate purchased before the wedding Date: 1/31/2000 5:40 PM
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elibortPrairiela writes (in part):

What would have happened if, during the 7 weeks between the transfer and the intended wedding, the couple had called off the wedding and decided to go their separate ways? Would she have had to give him back her half of the house? You law students out there --- what about those engagement ring cases?

I reply:

I happen to be familiar with the California "engagement ring" rule, which is the relevant jurisdiction for my friend. Under California law, an engagement ring is considered a gift that is conditional upon the marriage occurring. Thus, if the marriage doesn't take place, the ring must be returned. Does that change the gift tax implications, because the gift isn't complete until the wedding? --Bob

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26609 of 121150
Subject: Re: Real estate purchased before the wedding Date: 2/1/2000 1:53 PM
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<<I happen to be familiar with the California "engagement ring" rule, which is the relevant jurisdiction for my friend. Under California law, an engagement ring is considered a gift that is conditional upon the marriage occurring. Thus, if the marriage doesn't take place, the ring must be returned. Does that change the gift tax implications, because the gift isn't complete until the wedding? >>

I don't know from engagement rings, but I'm pretty sure that the gift is made when the deed is recorded with the County recorder. I don't know that such "conditions" could be applied in this case.

At the point of transfer, my understanding is that the property is legally "joint", and then can't be broken without the consent of both joint parties.

Now...if the PROMISE was made to make the house a joint asset before marriage, but the actual transfer didn't take place until after marriage, then you've got a whole new ballgame. Then the gift didn't take place until after the knot was tied, and the transfer would not be subject to the gift tax rules. But from the sound of your original post, the (legal) transfer took place sometime before the wedding vows.

So I would still think that we have a transfer subject to the gift tax issues.

TMF Taxes
Roy

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