Parents gifting adult child with Home

6 Replies

My in-laws recently retired and want to give their home in Philadelphia, PA to my wife. How do we start the proces? Should we meet with a real estate attornery or go to a title transfer office?

This is definitely something for an attorney but also an accountant. The structure of a gifting situation can trigger taxes and estate issues. While these issues can be on the parents side , it is probably best if you and your wife understand this from both sides. My experience is that it older people may not consider all the effects of such a transfer. A little pre-planning can achieve more of what they were looking to do in the first place. However only you know how knowledgeable they are and they may have already have a well thought out plan.   In any case i would reccommend using a lawyer and what you want to do with the house may figure into the planning as well.

I assume that if your parents are retiring AND giving you a house they must be pretty well off.  So, absolutely start by discussing this with a CPA.  The issue for them is that a gift of over $14,000 reduces the amount of money they can transfer on their deaths without taxes.  Each can give your wife $14K, so if the value of the property is more than $28K, the excess would reduce the amount they can transfer tax free on death.  Not that limit is something like $5 million, so this may or may not be an issue.

For you, the issue deals with your basis in the property.  If a property is transferred on death, the heirs get the "stepped up basis" which is the fair market value at the time of death.  But because this is being transferred while her parents are alive your wife's basis will be your parents basis.  That means if she sells down the road, her gain is determined based on what her parents paid for the house.

I agree with @Colleen F.  

The title transfer is very simple,  I'd probably just go quit claim at the courthouse for this,  but use title company if you want title insurance or lawyer if the paperwork scares you. 

Tax implacations are the bigger deal. Meet with your in-law's tax preparer, tax attourney or other professional in this space.  

Everyone is making good points. 

Another thing to think about is if you are going to live there and the the home is worth significantly less than the irs home exclusion sale limits (500k MFJ) then the non-stepped up basis is less of a worry. 

To expand on Jon's point which each of her parents can give her $14 for a total of $28k. They can also give you $28k for a total gift exclusion of $56k. Just the agreement would need to spell that out accordingly and they would need to file separate gift tax forms which isn't difficult, but is time consuming.

Definitely consult with a tax professional first.  My understanding is gifting would give you a basis of $0 and there could be ways to get a basis of $60,000 which is beneficial when you sell.

I strongly suggest a warranty deed over a quit claim deed as some title insurance providers are balking at quit claim deeds so it could save you some additional headaches when you go to sell the property 

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