What is a Quitclaim deed?
A quitclaim deed is a legal tool that transfers a person’s or entity’s interest or claims in real estate to another person or organization. A quitclaim deed, unlike a warranty or grant deed, makes no assurances or promises concerning the ownership or condition of the property. It merely transfers the individual’s interest or rights in the property, if any, to the deed’s beneficiary.
The person transferring the property interest, known as the grantor, basically “quits” or releases any claim they may have on the land by executing a quitclaim deed. This implies that if the grantor has no ownership stake in the property, the grantee gains no ownership rights by obtaining the quitclaim deed.
Quitclaim deeds are often used to explain or settle ambiguities concerning property ownership, such as in divorces, transfers between family members, or to remedy title disputes. They are also used in transactions if the parties have high confidence or acquaintance. However, quitclaim deeds give a different degree of protection than warranty deeds and thus are not typically utilized in real estate transactions where clear title and ownership are required.
What does a quit claim deed mean in a mortgage?
A quitclaim deed is a record that transmits property ownership from one person to another in the context of a mortgage. It is used when a property owner wants their name removed from the mortgage without selling the property. This indicates that the grantor (the person giving up their interest) is giving up any claim to the property, including liability for the mortgage.
When a quitclaim deed is used in a mortgage scenario, it removes the grantor’s name from the property title. Still, it does not discharge the grantor’s financial responsibility to the mortgage lender. The grantor’s name may be removed from the ownership records, but they are still legally accountable for servicing the mortgage obligation unless alternative arrangements are made.
It should be noted that signing a quitclaim deed does not relieve the grantor of their mortgage responsibility. The grantee (the person acquiring the property interest) is automatically accountable for the mortgage once they absorb the debt or engage in a new loan arrangement with the lender.
Is a quick claim deed taxable?
Yes, in most cases, someone will owe taxes when transferring property through a quitclaim deed. You must record the transfer to the IRS using Form 709, which is used to report federal gift taxes. The individual making the gift is liable for paying the tax, while the receiver is not required to disclose the gift.
Quitclaims “carry over” the tax basis of the giver.
A beneficiary of a free, quitclaimed property who subsequently sells the gift home must state the original purchase price as the tax basis. Here are some of the reasons why many parents choose to leave a house to a kid through a will or trust rather than hand it to the child:
- If you leave your house to an adult child in your will, the beneficiary can claim a stepped-up tax basis for the residence. This may significantly offset taxable capital gains.
- A revocable trust, which avoids probate, may also assist your beneficiaries in lowering their tax loads. They will not have to pay tax on their capital gains for the period they have owned the house.
In contrast, financial gains made during your years of housekeeping are transferred to the receiver through a quitclaim.
Assume you’ve owned the house for a long time. Its market worth has increased by $50,000 since you purchased it. Quitclaim it to your children, and when they sell, they will be taxed on the increase in valu