What Are the Tax Implications of a Quitclaim Deed?

Quitclaim Property as a Gift

In many cases involving a quitclaim deed, the change in property ownership is done without any exchange of money between the grantor of the property and the grantee. The Internal Revenue Service (IRS) allows individuals to gift property without federal tax consequences as long as it falls within the guidelines for the annual gift exclusion. Each year the amount can change. As of 2012, the annual gift exclusion amount was $13,000, which means that you can gift property up to $13,000 and it’s not a taxable event. The annual gift tax exclusion rises to $14,000 in 2013. A spouse gifting a property to her spouse is also not conducting a taxable event.

Spouses are also permitted to gift away property that they own jointly, which doubles the amount of the gift that is excluded from federal taxation. For example, if a mother and father gift a home to their son, the annual exclusion for 2012 would be $26,000 ($13,000 for the mother and $13,000 for the father) and $28,000 in 2013. If the market value of the home exceeds the allowed gift amount, then a gift tax may be due on the difference. The gift tax is paid by the grantor (or giver) of the property.

Tax forms

Receiving the Property

When you are the recipient of the property from a quitclaim deed transaction, the county and state where the new deed is being recorded charges recording fees. Once you obtain ownership of a property through a quitclaim deed, you are then financially responsible for paying the taxes on the property. When the annual tax bill is issued by the county where the property is located, you then have to make the tax payment.

Often, when the property has a mortgage, the mortgage remains in the name of the party that quitclaims the deed to you. This means they are still financially responsible for the mortgage. If the property has a mortgage and the mortgage company escrows for taxes, then the tax bill is sent to the mortgage company, who then pays the tax bill on the mortgage holder’s behalf. Even if you are not financially responsible for the mortgage, however, you are financially responsible for making sure that the property taxes are paid on the property since the deed is in your name.

Excise Tax

If there is a mortgage on the property when it transfers with the quitclaim deed and the recipient of the property assumes the responsibility for the debt, then the grantor of the property may be required to pay excise tax on the mortgage balance because the debt is going away for the gift giver. For example, if the home is worth $200,000 and it has a $75,000 mortgage, when the quitclaim deed is recorded, the gift giver may be responsible for paying the real estate excise tax on the $75,000 debt assumption. Whether or not an excise tax is required depends on the county and municipality where the property is located. Contact the tax collector’s office in the county where the property is located for the local laws on excise taxes.

Excise tax rates vary and can range from 1.6 percent to 1.8 percent. The excise tax, if required, is paid by the "seller" or giver of the property. An excise tax is paid even if the property is free and clear of any debts (if the county requires it).

One way to avoid paying excise taxes is to sign a quitclaim deed to transfer the title to a party, but have the “seller” of the property retain the responsibility for the mortgage that exists on the property. If the “seller” retains ownership of the mortgage, then the person receiving the property is not incurring any debt, which removes the need to pay excise tax from the situation.

Quitclaim deed