If a property gifted has an encumbrance, how does it affect gifting taxes?

When a property gifted carries an encumbrance, such as a mortgage or lien, it directly impacts the value of the gift for tax purposes. The value of the gift is determined based on the fair market value of the property minus any outstanding liabilities associated with it, including encumbrances. This means that if the property is worth $300,000 but has a mortgage of $100,000, the taxable gift amount is effectively reduced to $200,000. As a result, the encumbrance lowers the value of the gift that gets reported for tax calculations, thereby reducing the donor's potential tax liability.

Other options describe various misconceptions. The claim that it has no impact on the donor's tax overlooks how liabilities affect valuation, while the notion that the donor is liable for all taxes regardless of any encumbrance fails to account for the computations based on net value. The idea that the donation could be deemed void for tax purposes is inaccurate, as gifts with encumbrances are valid and simply require adjustment in valuation for tax calculations.