What Are the Tax Implications of a Quitclaim Deed?

by Mallory Malesky
Quitclaim deeds have multiple tax implications.

Quitclaim deeds are legal documents used to convey property ownership from one party to another. The quitclaim deed doesn't imply any type of warranty from the grantor of a clear title, it only conveys whatever interest the grantor has to the grantee. Because of this, quitclaims are typically used to add or remove a person as an owner without an actual sale taking place, although the quitclaim deed can be used for a sale. The specific conditions of the transfer determines what type of tax implications the grantor and grantee will assume.

Transfer Taxes

Many states impose taxes on property transfers. They commonly are called real estate transfer taxes, although there are other names in some states. The tax is calculated based on a small percentage the sales price, or consideration, stated on the deed. Typically, transfer taxes are collected when the deed is brought to the county clerk or recorder to be filed on record. Most states offer various types of exemptions from this tax. Common exemptions include transfers between spouses and parents to children.

Property Taxes

The legal owner of a property, as determined by a title search, is responsible for paying property taxes. These taxes are assessed and imposed at the local level, usually the county or city. Property tax revenue is used to fund various initiatives, such as education and public safety. The taxing authority determines how much your property taxes will be based on the tax-assessed value of the property and the base tax rate. Failure to pay property taxes can result in a tax lien or foreclosure. It's important to file a quitclaim deed on record once it's signed so the correct owners will be billed for the next property tax cycle.

Federal Taxes

Depending on the conditions of the quitclaim deed transfer, federal taxes may be imposed. If the property was transferred as a gift, then the federal gift tax is applicable. The tax is assessed on the fair market value of the property. At the time of publication, individuals can claim $13,000 per year as an exemption to the tax, while married couples can claim $26,000. If a quitclaim deed was used for the sale of a property, then the capital gains tax applies. The capital gains tax is calculated based on any profit from the sale. There's also an exemption for this tax -- $250,000 for singles and $500,000 for married couples.

Inheritance Tax

If a property is transferred after the owner dies, an inheritance tax may apply. Some states impose inheritance taxes on the beneficiaries of real property they receive after a loved one passes away. Quitclaim deeds are sometimes used to avoid the inheritance tax by granting the heir ownership before death. Inheritance tax is separate from the estate tax also imposed at death. The estate tax is mandated federally, while the inheritance tax is state-based.

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