Parents want to gift their portion of co-owned property?

3 Replies

Hey all,

My parents and I are tenants in common on a property we bought back in 2007. My wife, kids and I currently occupy the property and the ownership split is 25/75. My parents want to gift their portion of ownership to us so that we have full ownership, also so we could sell and get a bigger place if we need. 

There are some caveats we would need to work through; I have two brothers that technically each have a third ownership per the trust (this would work out to 25% ownership for them each based on the current math since I already 'own' [on a private loan agreement with my parents] 25%). It sounds like the way it would work is that I would just opt to take that much less in cash from the estate in my parents' inheritance. All this would be spelled out in a contract of course as far as that arrangement. 

The other concern would be capital gains taxes. However, if this is our primary residence for at least 2 years after they gift/transfer ownership to us, would we be in the clear of owing on capital gains taxes up to $250k per person (or $500k total)? I really doubt this place will appreciate more than $100k assuming we sell within the next 5 years, so the presumption would be that we wouldn't end up owing anything...is that right?

We are just trying to look for ways to minimize/avoid the tax burden (either for my parents or myself). I assume since they would be gifting, there would be no tax burden for them as we would assume it. But the 2 year rule (assuming we stay for that long or longer) would override that. 

Another thing I didn't really think about with all this, more on my parents' side, is the lifetime gift exemption and what impact(s) all this would have on that. We don't really know the size of their estate of course, but presumably they are going to discuss all this when they consult with their lawyer(s).

I would not be happy with the arrangement if I was one of the brothers that had to wait till my parents die to get my portion if you are getting yours up front. In your shoes to be fair to all I would not agree to it and request that every one gets their share immediately or I would not accept the gift.

You would have freedom to invest and generate a higher return immediately with your portion while your bothers portions are invested by your parents generating income that would ultimately have to split with you as well.

In other words the gift is win/win for you and lose/lose for every one else.

Originally posted by @Thomas S. :

I would not be happy with the arrangement if I was one of the brothers that had to wait till my parents die to get my portion if you are getting yours up front. In your shoes to be fair to all I would not agree to it and request that every one gets their share immediately or I would not accept the gift.

You would have freedom to invest and generate a higher return immediately with your portion while your bothers portions are invested by your parents generating income that would ultimately have to split with you as well.

In other words the gift is win/win for you and lose/lose for every one else.

So that might  mean that we would agree to buy out my brothers either all up front on on a private loan? 

As far as investing, this place is currently our primary residence. If this were a separate investment property that my parents were renting out and wanted to gift to us (and they do in fact have other properties in this regard) it would be a different story. Since we're living here and co-own it already though, it makes things a little complicated

Regarding "fair" - we have talked about this with my brothers (my parents sat us down) and the possibility of doing something like this. My brothers didn't seem to care much but the issue of "appreciation" was brought up too. Other thing is that my parents have 'helped' them out in various ways whether that was with down payments on their homes, housing without rents, etc so those are other factors in this consideration. My parents don't take lightly the issue of potential 'unfairness' and are trying to sort things out regarding that. They have two other investment properties aside from their primary residence, one of which they want to sell immediately. The other, including their primary, it seems they want to pass onto us. Now how that's divvied up, I don't know - they may want to 'assign' a property per brother and come up with some for of equity/asset trust 'equalization' so we each get a third of all their assets but hold different percentages of any particular asset. Issues and concerns over appreciation would be more or less 'at the risk' of whoever agrees on taking any given property. In a sense, we would be accepting the risk of this place potentially decreasing in value as much as it could appreciate (e.g. if there's an earthquake or other major damage, etc).

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here