Gifting a house to a relative. How to do it correctly?

[rmcelwee]

I started another thread on this but it went way off topic and so I thought I would just start another one. Question:

What is the best (most tax efficient?) way to turn over the deed to a 2nd house. The house is out of state and has been owned for 10+ years. It has an $80K cost basis and has not increased in value. It needs repairs and would be worth maybe $120K if fixed up. The person getting the house is a family member and probably has an income of $30K.

I know I really need expert advice but it would be very nice to hear your suggestions. Thanks!

 

[aja8888]

In Texas, you can gift a house using a Quit Claim Deed. Both parties have to agree on the transfer, sign the deed in front of a notary, and then file the deed with the County. Pretty simple, actually.

 

[rmcelwee]

In Texas, you can gift a house using a Quit Claim Deed. Both parties have to agree on the transfer, sign the deed in front of a notary, and then file the deed with the County. Pretty simple, actually.

No tax problems? DW will talk to tax person soon but I am just curious. Thanks!

 

[aja8888]

No tax problems? DW will talk to tax person soon but I am just curious. Thanks!

Gift tax will issues have to be looked at. It's not a sale, but a gift.

 

[audreyh1]

No tax problems? DW will talk to tax person soon but I am just curious. Thanks!

It’s a gift, assume exceeds $15K annual exemption, so the gift tax form 709 will need to be filled out and filed by next April 15, but no taxes owed at the time. The gift will count against the gifter’s estate tax exemption. But unless their estate exceeds $11.4M no Federal estate tax will be owed. There may be state/local tax issues.

 

[ivinsfan]

OP it's not off topic to say if you FIL might need to go in a nursing home in the next five years, the value of this house will be subject to look back rules.

 

[euro]

What is really important from the Capital Gains tax perspective is to have a good number for the value of the property. I recently found myself in a very similar situation and after consulting with my attorney and CPA, I decided to pay for an official appraisal of market value (around here, the appraisal costs about $250). The point is that you will have to be prepared to support your claim that the property has not increased in value. It doesn't really matter what the after-repair value would be. What matters is the actual value at the time of the gifting. I predict that you will have a hard time documenting your claim that the value has not increased, especially if that argument is based on your opinion that the needed repairs exactly outweigh the increase in value. The IRS could simply pull some comps for the neighborhood and conclude your claim is not valid. Better to pay for an independent appraisal and have the documentation in place.
I'm not familiar enough to know the ins and outs of quit claim deeds, but I think the previous poster is probably right in that it would work and likely only cost a relatively small amount. That said, in my opinion, if you are going to make a generous gift like that, you may want to set up the recipient with the "clean slate" of a full title transfer (full closing process) that comes with title search, title insurance, etc. Yes, that will set you back another few hundred dollars (at least if you are in a state that requires an attorney and not just a title company), but then the new owner knows that there won't be any surprises down the road.

 

[euro]

OP it's not off topic to say if you FIL might need to go in a nursing home in the next five year, the value of this house will be subject to look back rules.

.... didn't know there was a possible clawback situation involved. If so, then it is even more important to be able to document the current fair market value.

 

[gwraigty]

OP it's not off topic to say if you FIL might need to go in a nursing home in the next five years, the value of this house will be subject to look back rules.

Per the original topic, it's the grandfather, not a FIL. Other than that, a valid concern.

 

[rmcelwee]

OP it's not off topic to say if you FIL might need to go in a nursing home in the next five years, the value of this house will be subject to look back rules.

Yes, thanks. I hadn't really considered that but he gets SS/VA/pension of around $4k/month. He will probably be ok from that standpoint. Thanks for the reminder!

 

[rmcelwee]

I predict that you will have a hard time documenting your claim that the value has not increased, especially if that argument is based on your opinion that the needed repairs exactly outweigh the increase in value.

Good idea!

 

[Spock]

Yes, thanks. I hadn't really considered that but he gets SS/VA/pension of around $4k/month. He will probably be ok from that standpoint. Thanks for the reminder!

Except skilled nursing averages 7500/month.
https://www.genworth.com/aging-and-you/finances/cost-of-care.html


Add in some lingering outside expenses (insurance, co-pays, transport to appts, prop tax until the house sells, etc) and X income << Y spending while in a nursing home.

 

[ivinsfan]

Yes, thanks. I hadn't really considered that but he gets SS/VA/pension of around $4k/month. He will probably be ok from that standpoint. Thanks for the reminder!

You need to check with VA, about lookback and also check the state laws about lookback for a disabled veteran. Believe me 4K will not cover a nursing home.

BTW any money he "gives" to you could be subject to a 5 year lookback as well.

 

[rmcelwee]

Except skilled nursing averages 7500/month.

Doing this math for my records (not just a response to you):

$100K in the bank
$130K value of residence
$48K year

60 months x $7500 = $450K
$100k + $130K + $48K*5 = $470K

Looks like he would be ok for 5 years.

 

[OldShooter]

Really, the mechanics of transferring the property are no big deal. It is the tax aspects that might become complex, as several posters have pointed out. OP, you need to consult an attorney who is familiar with elder law, Medicaid, and VA policies.

Re "looks lie he would be ok for 5 years" really isn't the right way to look at it. Assume a worst-case or two. House burns down with inadequate insurance, bank account is depleted by swindle, etc. Then try to minimize these low-probability impacts with some good lawyering.

 

[ivinsfan]

Really, the mechanics of transferring the property are no big deal. It is the tax aspects that might become complex, as several posters have pointed out. OP, you need to consult an attorney who is familiar with elder law, Medicaid, and VA policies.

Re "looks lie he would be ok for 5 years" really isn't the right way to look at it. Assume a worst-case or two. House burns down with inadequate insurance, bank account is depleted by swindle, etc. Then try to minimize these low-probability impacts with some good lawyering.

well worst care would be the entire 80K is subject to look back and the OP ends footing the bills because no one else has any money. But with 100% disability rating a VA bed should become open in 5 years.

 

[ivinsfan]

Per the original topic, it's the grandfather, not a FIL. Other than that, a valid concern.

Yep it's a three generation thing which means it's long entrenched and the OP still has a chance to keep his spouse from being sucked into the void..

 

[ivinsfan]

Is your MIL the only child because that could become an issue too.

 

[Goldendoodlebug]

As a 100% disabled vet, Grandfather will not have to pay for nursing home care. It does not have to be in a Vet nursing home.
Also, 4000. Per month plus his money in the bank will not make him eligible for Medicaid. One issue not to worry about.

 

[ivinsfan]

As a 100% disabled vet, Grandfather will not have to pay for nursing home care. It does not have to be in a Vet nursing home.
Also, 4000. Per month plus his money in the bank will not make him eligible for Medicaid. One issue not to worry about.

I wondered about that which is why I mentioned the VA website, VA health care means he would need Part B but not a supplement. Best to check all the rules before you need to use them.

 

[OldShooter]

well worst care would be the entire 80K is subject to look back and the OP ends footing the bills because no one else has any money. But with 100% disability rating a VA bed should become open in 5 years.

I always hate planning that includes words like "should" or "probably."

 

[ivinsfan]

I always hate planning that includes words like "should" or "probably."

Me too... that doesn't work for me either..

 

[street]

What would be the argument be if you sold that house to him for 5K dollars. Would there be less issues and hoops to jump through selling it at a low price verses gifting the house?

 

[Teacher Terry]

Yes 100% disabled and the VA will pay for a nice nursing home. Have some experience with this.

 

[Goldendoodlebug]

No, you don’t understand. Congress passed a law in 2000, ALL vets who are 100% disabled are entitled to FREE NH care. It does not have to be in a vets home, it has nothing to do with Medicare partB.,Medicare as you know does not cover NH except for rehab.