How does a quitclaim deed work?

Q: What are the tax implications of using a quitclaim deed to transfer my home? – Danny Chang, Los Angeles

A: A quitclaim deed reflects a transfer of property, and is often used when transferring property between family members (when parents give property to a child, or when homeowners divorce).

About those taxes: Let’s say parents use a quitclaim to give the home they bought for $200,000 to a child. The transfer is a gift, not a taxable sale. So it does not trigger a tax-deductible loss (even if the child paid $1 for the property) because losses on transfers to "related parties" are not tax-deductible, says accountant and attorney G. Scott Haislet of Lafayette, Calif.

Mom and Dad don't report the gift on their income tax return; neither does the child (gifts from parents are income tax-free).

The parents would have to file a gift tax return (IRS form 709), including an appraisal documenting the value of the home at the time of the gift. The transfer will likely not trigger a gift tax, Haislet says, but may affect the parents' estate tax at death. Caveat: If the home is mortgaged, and the recipient of the property takes over the mortgage, that may be considered income to you. In that case, the transaction would be considered “part sale, part gift,” Haislet says. Consult your own CPA.

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