Gifting Land

[OldShooter]

You mean the difference between the negligible amount and the fair market value? I hear of plenty of leases for $1 if the tenant brings business, or pays utilities, or brings some other value to the lessor, often in malls, and I can't imagine that department stores pay taxes based on the fair market rent. You're right, street might want to pay for a one-time consultation with a real estate attorney, but I can see that having a tenant on the land and developing it or keeping it habitable or even keeping squatters away might be considered as having value. ...

Yup. Lots of opportunity for song, dance, and snappy patter. @street's tax advisor will help him work out the difference between making tenable interpretations that are favorable to him and committing outright tax fraud. If he gets audited the IRS will be the referee on that. They will always take their back taxes, but added penalties may depend on whether the interpretation was reasonable or egregious.

 

[Sunset]

I think the value of everyone's input, is to generate ideas, when OP talks to a legal expert.
The legal expert of course will naturally think of the conventional thing since that is the normal thing done, with all the natural assumptions.

OP will have ideas to bring up for discussion to see if there are alternatives to the normal "sell them the land".

 

[ExFlyBoy5]

I will get council advise for sure because I would want all paper work and recording done legally.

Very smart. There has been some good advice presented here, but property law vary wildly between states (such as many states do not allow for TODs) so it is worth the couple hundred bucks to make sure your decisions are carried out as you intend.

 

[RetireeRobert]

I think the value of everyone's input, is to generate ideas, when OP talks to a legal expert.
The legal expert of course will naturally think of the conventional thing since that is the normal thing done, with all the natural assumptions.

OP will have ideas to bring up for discussion to see if there are alternatives to the normal "sell them the land".

+1 On the subject of long-term leases, I know a local long established large church in town which owned an adjacent building and land parcel. A charter school needed a new facility for classes. The church ended up leasing the land to the charter school for 99 years for consideration of ten dollars. The church sold the actual building on the land to the school, but ownership at end of 99 years reverts to church for a nominal payment of $10. Not exactly analogous to a pure bare land transaction (with no existing building), but the idea of long term leases at nominal value are in fact being done. I have also been aware the US Forest Service has granted 99 year land leases within national forests for people to build vacation cabins on. The whole 99 year lease idea does seem to be legal.

 

[OldShooter]

+1 On the subject of long-term leases, I know a local long established large church in town which owned an adjacent building and land parcel. A charter school needed a new facility for classes. The church ended up leasing the land to the charter school for 99 years for consideration of ten dollars. The church sold the actual building on the land to the school, but ownership at end of 99 years reverts to church for a nominal payment of $10. Not exactly analogous to a pure bare land transaction (with no existing building), but the idea of long term leases at nominal value are in fact being done. I have also been aware the US Forest Service has granted 99 year land leases within national forests for people to build vacation cabins on. The whole 99 year lease idea does seem to be legal.

Oh, they are fairly common. What is not common AFIK is @street's case where valuation for gift tax purposes pertains. In your example case, you are talking about two tax-exempt entities, so it is not really relevant. Same story with Britain's 99 year lease on Hong Kong. Not really relevant.

 

[Sunset]

Oh, they are fairly common..... Same story with Britain's 99 year lease on Hong Kong. Not really relevant.

That seemed short sighted in retrospect.

In the past I've looked at houses on leased land, and passed them up even when there was 20 years left on the lease Glad I did or we might be packing right now..

 

[RetireeRobert]

For more info on squatters' rights, adverse possession, and state by state criteria, there is this: https://www.nolo.com/legal-encyclopedia/state-state-rules-adverse-possession.html

 

[Sunset]

Out of curiosity but I am wondering at the value OP feels the land is worth, and the size of the land.

 

[RetireeRobert]

Also curious, how much taxable gain does OP think he might have if he did outright sale of land? Maybe OP would want to just take a minimal income tax hit if it is not that much?

If intended recipient is a couple, then OP and OP's wife could gift cash to that couple of up to $60,000 a year. Then OP could consider an installment sale of land to the couple with installments pegged at $60,000 or less per year. (Or if recipient is a single person, $30,000 or less per year).

Idea would be to negate gift taxes, establish recipient with current market value as basis to minimize recipient's eventual income tax on any future sale, and OP generously take a "perhaps" minimal income tax hit now on this land sale?

 

[RetireeRobert]

Oh, they are fairly common. What is not common AFIK is @street's case where valuation for gift tax purposes pertains. In your example case, you are talking about two tax-exempt entities, so it is not really relevant.

Actually, this charter school is a private "for profit" entity. Also, not sure the church's commercial property operations and income there-from would be considered "tax exempt" operations (income or gift tax).

 

[street]

+1 On the subject of long-term leases, I know a local long established large church in town which owned an adjacent building and land parcel. A charter school needed a new facility for classes. The church ended up leasing the land to the charter school for 99 years for consideration of ten dollars. The church sold the actual building on the land to the school, but ownership at end of 99 years reverts to church for a nominal payment of $10. Not exactly analogous to a pure bare land transaction (with no existing building), but the idea of long term leases at nominal value are in fact being done. I have also been aware the US Forest Service has granted 99 year land leases within national forests for people to build vacation cabins on. The whole 99 year lease idea does seem to be legal.

Yes, I have known many that have done this. I'm absolutely positive it is legal but I don't know all the details involved.

 

[RetireeRobert]

Street, thanks for sharing those pics of the land you are talking about. Beautiful country, you are lucky to live around there. And your intended recipient of land is lucky too!

Another thought just occurred as to transferring the land by "gift". An objection was made that if land was gifted, then the recipient would "not" get a stepped up basis of current market value of parcel, but rather would get whatever your cost tax basis was in the parcel, and therefore would face perhaps huge income tax liability upon recipient's future sale of the land.

BUT, what if the recipient intends to live there for a long time, and even if they move, does not intend to sell the land in "their" lifetime" but keep it forever. This means for your lifetime and for recipient's lifetime, any income tax on land sale is out of the picture. It is an irrelevant consideration--for two lifetimes. Tax man stay away. And maybe recipient's heirs inherit this parcel when your recipient dies, then there is still no income tax hit unless and until that third generation sells the land!