Transferring/gifting property

5 Replies

My mother is near the end of her working life and wants to get rid of her 3 rental properties/duplexes. Our thoughts are that she could transfer/gift them to me to take over and I would in turn split the cash flow with her to supplement her retirement income. Would this have a large negative effect on her taxes and/or does this seem like a reasonable business move? Location is Wisconsin

The large impact on income taxes will be on you not your mother.  If your mother gives the properties to you, you take them at her adjusted cost basis.  If you later sell a property, you will have to pay the capital gains tax on the difference between your selling price and your adjusted cost basis.

Instead, if you inherit the properties at your mother's passing, you get the step up in basis and you avoid capital gains taxes if you decide to sell.  If she leaves the properties to you in her will, you will have to go through probate before you can take title in your name.  An alternative, have your mother create a living trust with herself as the beneficiary and name you as the alternate beneficiary.  She could name you as trustee.  Now, as trustee you manage the properties and whatever portion of the net income she gives you as a management fee is deductible on her tax return.  When she dies, you "inherit" the properties at their stepped up basis, and the trust avoids the cost of probate.

Best thing to do now is for you and your mother to have this discussion with an attorney whose primary practice is civil law.

I second @Dave Toelkes , as an enrolled agent I sometimes have to deal with the tax impacts of transactions such as these.  Trying to fix them after is usually a losing proposition.  I suggest you definitely speak with an attorney and tax specialist.  

Could you set up a new deed with a life estate? This would transfer the property to you upon death, avoid probate, and would not be considered a gift. Just a thought.

@Casey Moen

I disagree.  Creating a new deed but retaining a life estate would add Aaron's name to the title.  Adding his name to the title becomes a gift.  Aaron would lose the step up in basis on his half of the property.  Depending upon his state law, adding his name to the title could avoid probate upon his mother's death.

@Dave Toelkes you are correct! I am mistaken the IRS does consider that a gift. 

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