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What happens with your taxes if you give your child your home? |
What happens with your taxes if you give your child your home? The previous answer by sarah_02_45123 is correct, but perhaps incomplete. There are a number of issues involved here that should be considered. In 2006 the annual exclusion for gift tax purposes is $12,000 to any one individual. Thus, you can give your child $12,000 without having to pay gift tax. If you are married, your spouse can also give your child $12,000 tax free. If your child is married, both you and your spouse can give your child's spouse $12,000 tax free. So, for 2006, you could have given away as much as a $48,000 interest in your house without paying gift taxes. However, you and your spouse would each be required to file Form 709 to report these transactions. The annual exclusion amount may change for 2007 and later years to adjust for inflation. It will be safe to assume that it will be at least $12,000 per individual. Each year you transfer a portion of the value of the house, you'll need to get an appraisal to establish what your house is worth. This should be performed by a licensed real estate appraiser. The opinion of a real estate agent may not be accepted by the IRS. Once the value of your house is established, you'll need to prepare the paperwork transferring title of a percentage to your child. This will have to be recorded in the county in which you live. Your child should be concerned with the cost basis for their share of your property, for determining capital gains when and if the house is sold. I assume your cost basis will flow down to your child, which may be a disadvantage compared to the cost basis your house would have if it were inherited by your child. Eventually your child would acquire full ownership of your house, but it would take a number of years and be a hassle. I assume your purpose is estate planning. Do you have other assets that you can give away $12,000 worth each year? What is the total value of your estate, and is it more than the $2,000,000 exclusion amount for estate taxes? Perhaps you should establish a revocable living trust. It is one of the best ways for your estate to avoid probate, and minimize the portion the government will take in taxes. Even if you want to go ahead with giving your child your home, it would well be worth discussing your situation with a good estate planning attorney. You'll avoid a lot of future headaches for yourself and your child. In the meantime, you might read Publication 950 and the instructions for Form 709 from the IRS: http://www.irs.gov/pub/irs-pdf/p950.pdf... http://www.irs.gov/pub/irs-pdf/i709.pdf... Assuming the fair market value of the house is worth more than $12,000, you will have to pay gift tax on the excess. Your child will get a transferred basis in the property (whatever your basis is in the house), which means if your child sells the house he/she will have to pay ordinary income tax on the gain (amount he/she sells it for minus the transferred basis) If you're in no rush to give your child the property, I would transfer a portion of the property worth $12,000 (or whatever the annual exclusion amount for gift tax is in the year- it is 12k this year) to your child every year so that you can avoid paying gift tax! law school |
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