A quitclaim deed is a deed without guarantees that transfers a piece of property from one person to another. This type of deed can offer tax advantages when transferring property into a family member's name. The commonly seen advantage of using a quitclaim deed instead of the traditional warranty deed is keeping the property within the family without incurring additional cost.
The quitclaim deed is used to transfer real estate property from one person's name to another. The traditional deed, which is called a warranty deed, is used when property passes from one person to another through a sale of the property. This includes many guarantees to the new property owner. In a quitclaim deed, there are no guarantees included. The deed only guarantees the right of ownership to the person who is receiving the quitclaim deed for the property.
One benefit of a quitclaim deed is that most real estate transactions include paying tax for the transfer of the property, which is based on its value. If the property is transferring from one family member to another with no money attached as a sale, the transaction is considered a gift. A person is allowed to claim a gift of up to $13,000 every year before he is expected to pay tax on the gift. The lifetime total for gift tax exemption is $1 million, so if the person has not used this exemption up in gift giving, he can use it on the transfer of the property and be exempt from paying the tax providing the property's value is less than $1 million.
Effects on Liens
Another advantage of the quitclaim deed is that it transfers only the ownership of the property and it does transfer any leans or mortgages that are on the property. For this reason, the previous owner will still be responsible to pay any money owed on the property, even once his name is no longer on the title. The person receiving the transferred property from the quitclaim is not responsible for any money owed on the property unless she was as a co-owner before the quitclaim, such as in a divorce case. This advantage allows one family member to give a house to another family member without liens attached to the property.
The quitclaim deed is most commonly used in a divorce where one spouse has been granted the property either through the court or from the generosity of the other spouse. The title of the home goes into the name of the spouse who was granted the property, but the financial obligations that the other spouse originally signed for are still intact. Using the quitclaim, the couple is not taxed on the transfer of the house.
A quitclaim deed can be used to avoid probate court proceedings for your heir when you die. One example of how the quitclaim deed could be used to an advantage would be using this when a parent is terminally ill. If the parent used a quitclaim deed to transfer the property to a child, the property would not have to go through probate court when the parent dies. Probate court can be lengthy in time and costly in lawyer fees. A parent's name must be removed from the quitclaim deed when adding the heir. If the heir's name is just added to the deed along with the parent, then the property will still need to go through probate court once the parent has passed away.