Whenever you give someone more than the annual (yearly) exemption amount, you are supposed to file a gift-tax return. There is a tax on the givers of gifts. Or course, there is a lifetime exemption of $5 million so until you give more than that, you won’t owe any tax (it used to be $1 million and could revert back to that if Congress lets it happen in 2013). But, you still have to file a return if you give someone more than $13,000 in any one year.
Most people don’t make large gifts, so they don’t have to worry about gift-tax returns. But many people do give away their home or land (or add their child’s name to the deed as a co-owner). If you put your home in joint ownership with your child, you effectively gave that child half of the value of your home. Unless your home is pretty small it’s probably worth more than $26,000, so you should file a gift-tax return.
Now, the IRS is cracking down on this issue. They have targeted several states and demanded that the states turn over real estate transfer records so they can see if people are giving away homes without filing gift-tax returns. If you should have filed a return and did not, you might want to consider doing so now. If you didn’t owe any tax, there shouldn’t be any late filing penalty (which is based on the tax).
You should consult with your lawyer and tax advisor to ensure you do the right thing. Many lawyers advise their clients to do certain types of transfers that are not gifts for tax purposes, so you need to understand what you may have done and take the appropriate action. See your lawyer if you have any questions.
Here is a link to an article from Forbes magazine on this issue: IRS Targets Family Real Estate Transfers – William P. Barrett – Informer – Forbes