BiggerPockets

If anyone can provide some info it would be kindly appreciated. My Uncle wants to quit claim one of his properties to me. The property has been paid off and he is basically gifting it to me. Would he be able to claim this against his lifetime gift tax credit? If so would there be any kind of taxes due?

Thanks

I had time to check this website today. The gift exclusion is $13k for 2009. Amounts above that he needs to file a gift tax return that just indicate that he is using up some of his lifetime exclusion. Tax is due only if the $1million lifetime maximum is exceeded. But if he has a larger estate he should be seeking advice on how best to minimize taxes and doing it in $13k chunks to each person is one way. For instance, he could sell it to you with a note receivable and gift up to $13k per year to you to lower the balance due. Using this approach, you could end up owing his estate upon his premature death. The estate tax law is likely to change this year, so we have to stay on our toes and watch developments.

I'm not a CPA, but here is a thought.

Get the property with many $13K notes that each are low (or no) interest and each balloons in a successive year. One year at a time, one by one, you can be gifted the $13k in funds by the same uncle to pay off each note one by one until there are no more notes to pay down. I recall reading something of a similar nature; if I get the actual reference, I can try to post. It may have been in "The Truth About Money" from Ric Edelman.

Be sure to have attorney and / or CPA guide you if you run with this idea.

Harry,

As a general rule, you don't want to receive a gift of property if you can inherit it. The cost basis for the property your uncle gives you is his adjusted cost basis or the FMV whichever is less. If your uncle gifts you property he bought for $5K many years ago, and is worth $200K today, your cost basis will be your uncle's $5K. When you go to sell the property, you will have to pay the capital gains taxes due on the difference between $5K and your net sale price.

Gifting in chunks avoids federal estate tax impacts for your uncle but does not change the cost basis for the property gifted to you.

Why not have your uncle put the property into a revocable trust and name you as the beneficiary of the trust upon his death. Your uncle can let you use the property as your primary residence or give you the authority to manage the property as a rental. When your uncle dies, the property passes to you at a stepped up basis equal to the FMV at his date of death. Not only does the property avoid probate as a trust asset, but you have no capital gains taxes should you decide to sell at FMV after you inherit.