Tax Impact: Transfer Parent's homes to Me, Please :)

Investor · Oklahoma City · Member since 2019 · 56 posts · 5 votes

BP Fam,

Please seeking some guidance on managing tax impacts to me, to transfer my parents homes to me as the owner. All the homes are paid off. I am based in Pennsylvania.

I assume They should be able to gift all of it to me or sell it to me for a dollar so that I can manage tax implications, correct?

What are some other considerations I should be thinking of as I think through this process?

How would you/should I approach this to best manage tax implications and high expenses?

The ultimate goal is to have it solely me transferred to me as the owner, and then I'd like to get them each under their own LLC for rental purposes as well.

Would appreciate your guidance, thank you in advance BP community!

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Gregory H.

Real Estate Agent · Philadelphia, PA · Member since 2013 · 451 posts · 369 votes

In PA, there is no transfer tax between immediate family members, so you don't have to worry about that (have a lawyer do the transfer paperwork so you know it's done right). Just understand that once you transfer it from yourself to an LLC, you will have to pay full transfer tax, which is 1% as the person selling, and 1% as the LLC buying. If it is in Philadelphia, there is another 1% on each side. I would not recommend paying 2-4% of the property value just to have the property in an LLC. Just be well insured at the individual property level and throw an umbrella policy over everything for additional peace of mind.

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Victoria S.Pro Member
Investor · Miami FL / DMV · Member since 2016 · 70 posts · 27 votes
6y
Hey! You and they will need a CPA, but it sounds like your parents can just gift them to you. If they haven't given high value gifts prior, then they will fall under the 5mil (I believe that is current per person) exclusion, which makes everything easier to you, and then to LLCs at a later time.
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
6y
@Simond Wong

You may want to consult with the accountant's for your parents. They likely know how much they are eligible to gift without concerning estate/gift taxes.

You should be mindful that PA does have one of the highest transfer taxes in the country. You will likely still need to pay it based on FMV even if it is gifted for $1.

The question you should ask is - what is the basis that your parents currently have in the properties. This is important as you would receive a transfer in basis from them. The next question should be is there a better tax situation for you than a simple transfer from your parents to you.
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Gregory H.
Real Estate Agent · Philadelphia, PA · Member since 2013 · 451 posts · 369 votes
6y
In PA, there is no transfer tax between immediate family members, so you don't have to worry about that (have a lawyer do the transfer paperwork so you know it's done right). Just understand that once you transfer it from yourself to an LLC, you will have to pay full transfer tax, which is 1% as the person selling, and 1% as the LLC buying. If it is in Philadelphia, there is another 1% on each side. I would not recommend paying 2-4% of the property value just to have the property in an LLC. Just be well insured at the individual property level and throw an umbrella policy over everything for additional peace of mind.
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Bob E.
Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
6y
As always check with your accountant but here are some things to consider in your conversation:
- if you buy for a dollar you will have no depreciation and the market value of the house in excess of $14,000 becomes subject to gift tax. It might be possible, depending on how the property is titled, for each of your parents to gift you $14,000, bringing the exclusion amount up to $28,000. Assuming they are both alive.
- A second strategy might be to keep the current market price but have them gift you the property to you in portions up to the limit of the gift exclusion. While I am not certain, I would expect that their depreciated cost basis would transfer to you so you lose some, potentially a lot, of the depreciation benefit
- A third option would be to have them appoint you the manager and move the properties to an LLC. They can compensate you for managing the properties (anything in excess of market compensation would be considered a gift by the IRS Subject to the 14/28k limit) and the income to you is probably taxed as well. They can then pass the properties to you in their will and the cost basis would step up to the current market price, allowing you to either 1) sell with paying capital gains taxes or 2) hold the properties with the now higher depreciation.
- A fourth option would be for you to purchase the properties at the current market price with your parents carrying the note. they can then "Gift you the payments" up to the 14/28k limit, or you can make payments but they could forgive you the principle in annual gifts, thus reducing your payment. When they pass the note will become part of their estate, if that all goes back to you great, otherwise you have to work it out with the other heirs.
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Lynnette E.
Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
6y
Your parents could also put it in a Family Trust with you as the beneficiary then when they pass you will get the stepped up basis, based on the value on the day they passed. This is important if you sell the property.
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