CLICK HERE for some suggestions on how your parents could gift a house to you.
Is there a specific circumstance that is forcing them to gift it?
If not, it would be better if you could inherit after death rather than being gifted.
If gifted, your basis in the property will be your parents basis.
If inherited, your basis will be FMV in the property. FMV must be very high because of the market now a days.
It would also depend on how you are going to use the house. If you are going to use the house as primary residence, gifting vs inherited property might not be as relevant when you sell the house because hopefully your gain can be excluded via sec 121 exclusion.
If this is going to be investment, then inherited property will provide you higher depreciation each year and also drastically cut you gain when you sell it.
Those are the major issues.
They could add your name to the deed, using OR not AND.. that way you can sell the house by yourself. Or if you keep it, it will automatically revert to you when they die
The single largest tax mistakes I see are parents gifting their child the house. They just gifted the child a large tax bill that could easily be avoided.
I highly recommend you seek professional tax advice for your specific situation before you do this.
Originally posted by @Harley Fowler :
@Ashish Acharya they are just planning to relocate and I’m not sure if I want to flip or use it to live in
Other way to avoid tax is, your parent selling the house now if it is their primary residence. There will be no tax when they sell. And then give you the money. There will be no gift tax if your parent have not used 22 million lifetime exemption.
Your selling the houses will have 60k tax impact (see hypothetical case below), them selling will have zero.
If now, depending if you can wait ( idk how hold your parents are), it would be most beneficial to not gift. We are taking about huge tax bill that can be avoided.
Let’s say your parent had
- FMV now :400k
If they gift you, then your basis will be 100k. And if you sell it right away, then your gain will be 300k. You will pay almost 60k in tax.
If you wait and inherit it, your basis will be FMV, so there will be no gain or tax.
These are simply an example.
It might make sense for them to keep the house even if they move. May be rent it out. You can manage it until you inherit it and do whatever you want to.
If you are ok with paying 60k, take a gift.
If you plan to flip the property - maybe your parents can simply pay you to manage the renovation of the house.
You get paid for the renovation and pay tax on that amount.
Your parents are able to sell the house for more now since its renovated. They increase their basis in the property by the cost of the renovation they paid you which lowers their gain. They may not have any taxable gain to begin with if it is their personal residence and lived in it for 2 out of the last 5 years. However, it depends on what their basis is and what the fair market value of the property is.
Once the property is sold - they can gift you the money in which case you can purchase an investment property.
Win win for everyone
Welcome to BP @Robert Cuellar !
You seem to be asking quite a few questions in your post. I can only address the tax-related ones.
If you inherit the property, there is no tax to you on the transfer of the property to you. If you sell after you inherit you may have to pay capital gains tax, with your basis in the property fixed at the value of the property on the date of death.
Questions on how to ensure the transfer of the property is to you and not your brothers are legal questions. Your mother should consult a lawyer for those answers.
Best of Luck and Happy Holidays!