Tax Guidelines for Real Estate Gifts

Q: I know that individuals can make annual gifts of $10,000 to as many people as they want without triggering any gift tax consequences. May my wife and I as a couple grant interests in some commercial real estate of $20,000 to each of our children each year with the same absence of gift tax consequences? Assuming we can, may my wife and I still claim the entire interest, property tax and depreciation deductions until the properties pass entirely to our children? --L.B.

A: You may give a partial interest in your real estate holdings to your children each year until the properties pass entirely to them. However, you may not hold on to all the deductions while the property ownership is in transition. The deductions must be prorated among the owners according to the percentage of ownership.

Before you begin to pass on partial ownership interests in real estate to anyone, you should talk to your attorney, accountant or other trusted professional adviser about establishing a “family limited partnership” for this transaction.

These partnerships are considered by many estate planning experts to be ideal for families with assets well into seven figures or families with non-liquid business and real estate holdings that they do not want included in their estates because the burden of estate taxes could require the sale of those assets.

Your estate planning adviser should know of these partnerships. They have been in vogue for a while now, and in recent years, a growing number of attorneys and accountants have started covering them in detail during estate planning seminars they offer their clients and prospective clients.

However, you should know in advance that family limited partnerships are not for everyone and they can prove a costly extra expense if used in the wrong instances.

For example, you can expect to pay an attorney thousands of dollars to establish the partnership; the state Franchise Tax Board also assesses partnerships an annual fee.

Further, holders of less than 10% in a money-losing partnership may not get a tax benefit from any business losses because such a small ownership stake is presumed to be a passive activity.

Estate Tax Rates Can Vary Greatly

Q: We keep reading that estates of under $600,000 can be passed on tax-free to our heirs. Further, schemes abound to reduce the bite of estate taxes. Can you please tell me exactly what the tax rates are for estates in excess of $600,000? --G.G.

A: The rates start at 37% for amounts between $600,000 and $750,000. The rate is 39% for amounts up to $1 million. Between $1 million and $1.25 million, the rate is 41%. It jumps to 43% at $1.25 million, 45% at $1.5 million, 49% at $2 million, 53% at $2.5 million and 55% for amounts over $3 million.

Restoring Records for Savings Bonds

Q: I have been purchasing U.S. Savings Bonds at work for several years and would like to know how much my bonds are currently worth. How may I do this? Also, I am not sure I have all the bonds I have purchased. Is there some way to get a list of the bonds I should be holding? --M.T.

A: Your local bank should have redemption tables for their tellers to consult. However, if you do not want to tie up a bank line for this, you can obtain your own copy of the redemption tables by calling the Federal Reserve Bank of Kansas City at (800) 333-2919. This number is valid only for residents of the central and western United States and is staffed from 6 a.m. to 3 p.m. PST Monday through Friday.

To verify whether you have all the bonds you have purchased, you can write to the Department of the Treasury. The results of the department’s search will depend on the specificity of the information you offer.

The exact name of the bond holder is critical, a fact that women, who may have used maiden and several different married names, should be sure to note. Include the name and Social Security number under which the bonds were purchased and your address and employer at the time of purchases. Send this information to the Department of the Treasury, Bureau of Public Debt, Bond Consulting Branch, Parkersburg, W.Va. 26106-1328. Within several weeks you should receive a listing of the bonds issued to you.

If the resulting report shows that you have lost one or more of your Savings Bonds, they can be replaced. However, you must have enough information about the lost certificates to persuade the U.S. Treasury that you are the rightful owner of the misplaced or ruined documents.

If the bonds were in your possession when they were lost, you would file a PDF-1048, a “Lost Bond Claim” with the U.S. Treasury.

If the bonds were purchased and lost in the mail before you received them, you would file a PDF-3062, or “Claim for Relief on Account of Loss, Theft or Destruction of U.S. Savings Bonds After Valid Issue But Prior to Receipt by Owner.”

Bondholders filing a PDF-1048 will be asked to supply the following key fact: the bond’s issue date, serial number and denomination as well as the name and Social Security number of the bond holder. The amount of information you supply will determine how easy it will be for the Treasury Department to reissue your bond.

Both PDF forms are available at local banks. Taxpayers in the central and western United States may also obtain the forms by calling the Federal Reserve Bank of Kansas City at (800) 333-2919 between the hours outlined above.