How do I gift my son Our House

[ScotsmanUS]

We are planning to gift our son our current Primary Residence when we move back to the UK in our late 70's.

I expect the home to be worth say $700,000 with $200,000 remaining on the mortgage. Since its our Primary Residence and will have been for over 2 years I assume I get the $500000 Married Filing Jointly Cap Gains deduction, if that even comes into the deal.

My desire is to simply give/transfer title to him but I assume it isnt as easy as that for tax reasons. If I file my taxes that year to show the correct value of the home minus costs to determine a theoretical Gain, then deduct the $500,000 exemption and pay tax on whats left can I just gift him the home and deduct the amout from our lifetime Inheritance amount ??

Or, how else can I do this

Thanks
Brian

 

[street]

Yes, how I understand the law you can gift property and use the lifetime inheritance method (709) tax form. You need to get an appraisal for the value and legal path for the property gifting.

 

[RE2Boys]

For tax purposes, a gift retains the grantor's basis. Thus, you will transfer responsibility for all tax on capital gains directly to your son.
Here is an interesting article on the subject: https://www.elderlawanswers.com/how-to-pass-your-home-to-your-children-tax-free-15866

Selling the house to your son for less than fair market value may be the best option. The amount below market value is considered a gift and may require Form 709 gift tax

 

[street]

For tax purposes, a gift retains the grantor's basis. Thus, you will transfer responsibility for all tax on capital gains directly to your son.
Here is an interesting article on the subject: https://www.elderlawanswers.com/how-to-pass-your-home-to-your-children-tax-free-15866

Selling the house to your son for less than fair market value may be the best option. The amount below market value is considered a gift and may require Form 709 gift tax

Isn't there some legal implications for selling less than market value in this scenario? Just asking what the laws says.

 

[RobbieB]

You can make up all sorts of stuff.

Bad repair, clutter, termites, electrical problems, drainage problems and plumbing problems.

 

[street]

You can make up all sorts of stuff.

Bad repair, clutter, termites, electrical problems, drainage problems and plumbing problems.

Thanks Robbie.

 

[RobbieB]

No problem.

I sold Pops's house under market, buyer knew they were getting a "fully furnished, loaded to the max, basement and attic" house, as is.

I flew back to Detroit for a week just to go through the drawers and pack a 2003 Taurus full to the max with what I could get out.

Pity. I wish I had more time. But hey I was still working and you know how that goes.

 

[cathy63]

I expect the home to be worth say $700,000 with $200,000 remaining on the mortgage. Since its our Primary Residence and will have been for over 2 years I assume I get the $500000 Married Filing Jointly Cap Gains deduction, if that even comes into the deal.

No, you only get a cap gains exclusion for sale of your primary home if you actually sell it.

My desire is to simply give/transfer title to him but I assume it isnt as easy as that for tax reasons. If I file my taxes that year to show the correct value of the home minus costs to determine a theoretical Gain, then deduct the $500,000 exemption and pay tax on whats left can I just gift him the home and deduct the amout from our lifetime Inheritance amount ??

There's no capital gain related to a gift. You just file your income taxes as normal, not even mentioning the house, then you also file a gift tax return showing the value of the gift given and that amount is deducted from your lifetime estate tax exemption when you eventually die.

When you do give away the house, make sure that you also transfer all the info needed in order to calculate the basis (i.e. your records of the purchase price and spending on all improvements). Your son will need that if he ever wants to sell it in the future.

 

[cathy63]

Isn't there some legal implications for selling less than market value in this scenario? Just asking what the laws says.

It's the same as if you sell anything below market vlaue. You report whatever capital gain you received from the sale on your income tax (except if it's your primary home you can exclude $250K/$500K of gain) and then you also have to report the difference between the value and sales price on a gift tax return if it's over $16K per person.

 

[street]

No, you only get a cap gains exclusion for sale of your primary home if you actually sell it.



There's no capital gain related to a gift. You just file your income taxes as normal, not even mentioning the house, then you also file a gift tax return showing the value of the gift given and that amount is deducted from your lifetime estate tax exemption when you eventually die.

When you do give away the house, make sure that you also transfer all the info needed in order to calculate the basis (i.e. your records of the purchase price and spending on all improvements). Your son will need that if he ever wants to sell it in the future.

Exactly what I was told. Thanks for confirming!

 

[livingalmostlarge]

I would not gift the home but wait until death for stepped up basis. Of course who knows if that will go away but it is here now...

 

[Bruno]

No expert but could you just put son on as a co owner. Loan company might be a problem just throwing that out there.

 

[RobbieB]

Yeah, just re-deed JTWROS. When you pass the house will pass to son.

 

[donheff]

No expert but could you just put son on as a co owner. Loan company might be a problem just throwing that out there.

Yeah, just re-deed JTWROS. When you pass the house will pass to son.

This was my concern also. If the interest rate is lower than current rates I would expect the mortgage company might call the loan. re-deeding will get him the house but also leaves you responsible for the mortgage, accident liability, etc.

My inclination would be to allow the kid to live there at no cost (just maintenance, insurance, and utilities) until they inherit at a stepped up basis. (Do mortgage's specify that they can call if you move out?)

If the kid has the resources to get a loan for the house value an alternative could be to sell him the house at market value and later gift him the cash you receive. I would confirm the legality of such a move first. It seems within the spirit of the law to me but... A final alternative: just sell the joint and gift your son the net. Let him decide where to live.

 

[JP.mpls]

No problem.

I sold Pops's house under market, buyer knew they were getting a "fully furnished, loaded to the max, basement and attic" house, as is.

I flew back to Detroit for a week just to go through the drawers and pack a 2003 Taurus full to the max with what I could get out.

Pity. I wish I had more time. But hey I was still working and you know how that goes.

Robbie,
My partner's parents just bought a place near us in Florida. They plan on moving here full time.

The problem:. They have a house full of old furniture, and a basement full of stuff from living there 60 years. Probably a similar situation to your father, but they are still alive.

We are hoping they just purge 98% of the crap, and move on. Selling the place furnished would be ideal, but just paying someone to purge it would also be reasonable.

It will be interesting to see what they are capable of doing. Mom is already clinging to the two physically largest items, a bedroom set and a big heavy living room cabinet. Ugh.

Take care,. JP

 

[The Cosmic Avenger]

This was my concern also. If the interest rate is lower than current rates I would expect the mortgage company might call the loan. re-deeding will get him the house but also leaves you responsible for the mortgage, accident liability, etc.

My inclination would be to allow the kid to live there at no cost (just maintenance, insurance, and utilities) until they inherit at a stepped up basis. (Do mortgage's specify that they can call if you move out?)

If the kid has the resources to get a loan for the house value an alternative could be to sell him the house at market value and later gift him the cash you receive. I would confirm the legality of such a move first. It seems within the spirit of the law to me but... A final alternative: just sell the joint and gift your son the net. Let him decide where to live.

This is what I was thinking. If the house is in CA, they do allow real property deeds to be TOD. Then the son would get the stepped up basis on it, and I am not aware of any tax implications to letting someone live rent-free in a house that you own.

 

[street]

When it came time for me to sell my folks home and belongings, I contacted a local auctioneer. I took all the personal things family history items.
The auctioneer took the keys to the home and went through it and had an auction and sold all the items plus the home etc.
It worked great for me, and he didn't charge any more for going it this way than his standard % of total sales of the auction.

 

[cathy63]

This is what I was thinking. If the house is in CA, they do allow real property deeds to be TOD. Then the son would get the stepped up basis on it, and I am not aware of any tax implications to letting someone live rent-free in a house that you own.

Tax-wise, letting someone live rent free is giving them a gift. If the value of the gift exceeds the annual exclusion amount, you are supposed to report it on a gift tax return. Also, you can't claim any of the rental expenses or depreciation for the house if you don't charge a fair market rent.

 

[The Cosmic Avenger]

Tax-wise, letting someone live rent free is giving them a gift. If the value of the gift exceeds the annual exclusion amount, you are supposed to report it on a gift tax return. Also, you can't claim any of the rental expenses or depreciation for the house if you don't charge a fair market rent.

Forgiving the fair market rent could fall under the annual gift exemption...in CA, probably not, unless both the OP and son are married (so $60K instead of $15K), but even if not, it would allow them to spread out the gift more rather than make it all in one year, and then still step up the basis, which I would think would be more than the depreciation they could capture, but then I've never done this. Seems worth looking into, though.

 

[cathy63]

Forgiving the fair market rent could fall under the annual gift exemption...in CA, probably not, unless both the OP and son are married (so $60K instead of $15K), but even if not, it would allow them to spread out the gift more rather than make it all in one year, and then still step up the basis, which I would think would be more than the depreciation they could capture, but then I've never done this. Seems worth looking into, though.

Yeah, I'm sure it's worth doing. I was just responding to the idea that there are no tax implications. There are, even if it's a technicality.

Realistically, if you don't file the gift tax return, it's not something the IRS can catch in a normal audit, especially if you don't claim the property tax deduction on Sched A. If they are pulling property ownership records from states and counties and asking about who lives in your houses, then they are investigating something a lot more serious than failure to report gift tax obligations.

 

[Alan]

We are planning to gift our son our current Primary Residence when we move back to the UK in our late 70's.

Plenty of good advice above.

You may already know this but my advice is to make sure you complete this before moving back to the UK to save any complications with possible cross-border taxation issues. You will also be retiring a mortgage, paying off $200k, and that will mean some complicated calculations using current and historic exchange rates and may well result in taxable currency exchange gains if you are in the UK when this happens. We made sure to have sold our US house before we moved back, and then the funds of the sale were transferred to our UK bank to buy a house here with zero tax implications.

The gifting issue is not a problem from a UK standpoint, you can gift as much as you want without any reporting, on death there is a look-back 7 years for any large gifts of cash or property.

 

[OldShooter]

I just did a quick text search and found that the letters "CPA" don't appear in this thread.

Nothing wrong with getting smarter by asking for SGOTI's ideas, but the end of the quest ought to be in a CPA's office or a tax-savvy attorney's office.