Gifting Land

[street]

I have done some research and what I have found that gifting land is legal.

What I'm not clear on, is there is any capital gains that need to be paid?

So, what does the IRS wanting as a value for the land to be gifted?

That amount might make the yearly 30K tax free gifting from both of us.

I also could use the life time inheritance tax exemption for gifting as well. So what have I missed?

 

[RetireeRobert]

Yes, gifting land is legal--as long as you own it before you give it away! Since it is a gift, I do not see how any IRS capital gains tax should be due at time of gift. If the recipient of the gift later sells it, then capital gains tax would come into effect. As to gift/estate taxes, you are correct about the $30k exemption for pair of you and your wife as the givers. And yes, you are correct if the value of the gifted land exceeded $30k you could use the lifetime exemption to avoid any gift/estate tax liability.

 

[audreyh1]

It’s a gift, like cash, and if currently valued above the annual gift exemption mst be declared on a gift return as the amount above the annual exemption counts against your future estate exemption.

 

[street]

Thanks to both of you for your confirmation.
RetireeRobert, that makes sense on when the person that in gifted the land then sells the gift it would be a candidate for capitol gain tax. I can see that.

 

[RetireeRobert]

One other thought on gifting the land would be to get a couple of realtor "comparative market appraisals" on what the land is worth at the time you gift it. Such valuation might come in handy as support to any IRS gift tax form you might file. Also could be handy for recipient later on. Not sure I would necessarily pay for a "certified appraisal" by a licensed appraiser, but just get CMA's from a couple of experienced reputable realtors,

 

[street]

RetireeRobert, that is great advise. I was wondering on tax value county/state if that would be a value that would work also for gifting and showing a value of what the land is valued at according to local government numbers?

 

[cathy63]

The recipient of your gift takes on your cost basis, so when you give them the land, you need to document both the current value (for IRS gift tax purposes) and the cost basis (for calculating cap gains). This is why the usual advice is to hold onto the land if possible, and let the recipient inherit it so he gets a stepped up basis and avoids the cap gains tax.

 

[calmloki]

We gave a place away using the lifetime gift exclusion and set it's value based on insured value, property tax "true cash value", and a real estate agent's appraisal. It wasn't bare dirt, but it has been seven years and no one has hauled us off to jail, so it was probably OK.

 

[RetireeRobert]

RetireeRobert, that is great advise. I was wondering on tax value county/state if that would be a value that would work also for gifting and showing a value of what the land is valued at according to local government numbers?

I would say to also keep with your documents the county/state values. But typically it seems those values lag "real market value", so realtors comparative market analyses would give more realistic market values. The county/state records could give some credence to your higher realtor CMA values and show you were not deliberately trying to undervalue the land.

Other poster made a good point in that income tax cost basis for land recipient, if they ever sell the land, will be your own cost basis of the land gifted to them. Rather than the market value at date of gifting. It is true that recipient would get "stepped up basis" (value at date of death) if the land passed by inheritance at your death.

But even if you gift the land, just for good measure, I would still have some true market value at date of gift records on hand such as comparative market analyses by realtors. Always nice to know just what real value one is giving away.

 

[OldShooter]

... the usual advice is to hold onto the land if possible, and let the recipient inherit it so he gets a stepped up basis and avoids the cap gains tax.

This.

 

[RetireeRobert]

Street, I assume why you are even making this thread is because you "want" to gift this land "now" so recipient can make use of it "now"---rather than perhaps decades later when you are dead!

Here is an alternative to save the recipient income tax issues on capital gain down the road: "Sell" the land to recipient at today's fair market value. In the meantime you can be gifting (at $30k a year from both you and your wife) enough cash so recipient can pay you the land's fair market value. This tactic avoids gift tax problems for you, and avoids eventual income tax problem for recipient. In effect the recipient get his own cost basis at today's real market value since he is buying the land.

 

[street]

You people are amazing! Thanks for all the information. Now I an contemplate what I will work the best for all of us involved.

Yes, the new land has the old homestead acreage and it would be a nice gift for them. It has a beautiful view and private spot.

Thank you so much once again for the expert help.

 

[Sunset]

Our family has gifted the family cabin property for over 100 years.

It has the benefit of getting the property into the hands of younger folks who can take care of it and motivates them to take care of it, without any taxes paid.

Plus the hidden benefit is they would have a capital gain if they sold it, so it introduced a reluctance to sell the property.

 

[OldShooter]

... Here is an alternative to save the recipient income tax issues on capital gain down the road: "Sell" the land to recipient at today's fair market value. In the meantime you can be gifting (at $30k a year from both you and your wife) enough cash so recipient can pay you the land's fair market value. This tactic avoids gift tax problems for you, and avoids eventual income tax problem for recipient. In effect the recipient get his own cost basis at today's real market value since he is buying the land.

Well, that alternative certainly achieves the end goal but seems to do so at the huge cost of Street paying taxes on his gain. Taxes that may otherwise never have to be paid. Much better to hold the land until the basis step-up happens. A tax-oriented attorney or CPA might be able to identify legal means to sorta- kinda- give the land to the kids without creating tax problems. (A 99 year $1/year lease probably means a gift tax return.) Or just ignore this aspect from a legal POV, just let the kids move in and do what they like sans any paperwork.

 

[TheWizard]

...Or just ignore this aspect from a legal POV, just let the kids move in and do what they like sans any paperwork.

I would do this, and assuming Street is happy with what the eventual heirs are doing then it's all good.

If Street is married, make sure to will that land to those heirs upon his death and not to the surviving spouse, if it happens that way...

 

[calmloki]

Street, I assume why you are even making this thread is because you "want" to gift this land "now" so recipient can make use of it "now"---rather than perhaps decades later when you are dead!

Here is an alternative to save the recipient income tax issues on capital gain down the road: "Sell" the land to recipient at today's fair market value. In the meantime you can be gifting (at $30k a year from both you and your wife) enough cash so recipient can pay you the land's fair market value. This tactic avoids gift tax problems for you, and avoids eventual income tax problem for recipient. In effect the recipient get his own cost basis at today's real market value since he is buying the land.

Wonder about tying a "Transfer on Death" deed to this scheme. Thus any remaining amount due from the sale would go away, right?

Edit: and make the down payment and monthly payments tiny, so income is petit? Pay capital gains as they are received, and if Street is getting $10/month there aren't many?

(not a lawyer or tax person..)

 

[RetireeRobert]

Hey Street, that piece of land sounds wonderful. You got any pics you care to share?

Also, do your intended recipients for this piece of land like camping? Or living in temporary quarters, like a rough shod wood cabin? I like what the above posters suggested to just let your recipients "use" this land now, kind of unofficially, no land sale or land gift involved, no paperwork. But some happy campers benefitting from the beauty of that land!

 

[RetireeRobert]

One more thought just occurred to me. What if the people you are wanting to give the land to just occupied it for some years. Then they claim squatters' rights? I don't know the ins and outs legally of "squatters' rights", but nowdays seems like squatters seem to have more and more so-called rights. Then they go to court and claim ownership by adverse possession of this land they have lived on and utilized from some number of years. And court says--yes, you now own this land. So you don't have to worry about gift taxes at all. And maybe, just maybe, you can even claim a loss on your income taxes for this loss of your former property.

Maybe some real estate lawyers on this forum can chime in whether my day dreaming could even be feasible.

 

[Sunset]

I personally like the idea of let them use the land and pass it to them on death (TOD). Nobody pays taxes.

If they are nervous, rent the land for $1 and a lifetime contract that expires upon death of OP. At which point the TOD on the deed takes effect, or transfer in a WILL if TOD on land deed not allowed.

 

[RetireeRobert]

I personally like the idea of let them use the land and pass it to them on death (TOD). Nobody pays taxes.

If they are nervous, rent the land for $1 and a lifetime contract that expires upon death of OP. At which point the TOD on the deed takes effect, or transfer in a WILL if TOD on land deed not allowed.

Yes, this plan is probably more reality based and actually feasible--and legal.

 

[old medic]

You people are amazing! Thanks for all the information.

Yes thanks.... We have been needing to figure a way to set my brother up with the house hes been living in for nearly 20 years. He rented it after we moved to the home we built, and we got him when we bought it 4 years ago.

 

[The Cosmic Avenger]

Yes, I'd say the simplest thing is to "lease" them the land for 99 years at some negligible amount, then they can inherit it at the stepped-up basis.

 

[OldShooter]

Yes, I’d say the simplest thing is to “lease” them the land for 99 years at some negligible amount, then they can inherit it at the stepped-up basis.

I’m pretty sure that the economic value of that is a reportable gift. But, OP, you’re going to get professional help with this, right?

The squatter scenario is called adverse possession and would probably be called tax fraud if no gift tax return were filed.

 

[The Cosmic Avenger]

I’m pretty sure that the economic value of that is a reportable gift.

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.

The squatter scenario is called adverse possession and would probably be called tax fraud if no gift tax return were filed.

Oh, absolutely. +1.

 

[street]

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

The leasing method in interesting but I would rather they just use it as they wish. I'm leaning towards that this piece is willed to them from your advise.

This is just a small acreage of the old ranch yard of bottom ground viewing the main ranch. This piece is what I was thinking about gifting.