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Should My Parents Give Me Their Home?

  • March 5th, 2018
Q
Many people wonder if it is a good idea to give their home to their children. While it is possible to do this, giving away a house can have major tax consequences, among other results. When you give anyone property valued...
A

Many people wonder if it is a good idea to give their home to their children. While it is possible to do this, giving away a house can have major tax consequences, among other results.

When you give anyone property valued at more than $15,000 (in 2018) in any one year, you have to file a gift tax form.  Also, under current law you can gift a total of $11.18 million (in 2018) over your lifetime without incurring a gift tax. If your parents' residence is worth less than this amount, they likely won't have to pay any gift taxes, but they will still have to file a gift tax form

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While your parents may not have to pay taxes on the gift, if you sell the house right away, you may be facing steep taxes. The reason is that when property is given away, the tax basis (or the original cost) of the property for the giver becomes the tax basis for the recipient. For example, suppose your parents bought the house years ago for $150,000 and it is now worth $350,000. If they give their house to you, the tax basis will be $150,000. If you sell the house, you will have to pay capital gains taxes on $200,000 -- the difference between $150,000 and the selling price. The only way for you to avoid the taxes is for you to live in the house for at least two years before selling it. In that case, you can exclude up to $250,000 ($500,000 for a couple) of their capital gains from taxes.

Inherited property does not face the same taxes as gifted property. If you were to inherit the property, the property's tax basis would be "stepped up," which means the basis would be the current value of the property. However, the home will remain in your parents' estate, which may have estate tax consequences.

Beyond the tax consequences, gifting a house to you can affect your parents' eligibility for Medicaid coverage of long-term care.  There are other options for giving a house to children, including putting it in a trust or selling it to them. Before your parents give away their home, they should consult with their elder law attorney, who can advise them on the best method for passing on their home.

 


Last Modified: 03/05/2018
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