Can I gift a house ?
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Can I gift a house ?
Good evening,
I've been considering how I can transfer some real estate to my daughter and her husband and still stay within annual gift limits. Is it possible to gift fractional portions of real property ? (I desire to leave the estate tax exemption intact / unadjusted).
For example, assuming a residential property with a market value of $640k, and with annual gift limit moving to $16k in 2022, could my wife and I gift $64k worth of the property to the young couple each year for 10 years and then turn the grant deed over to them at that time? (It might be more than 10 years if property value grows some over that period).
If this is possible, how would one document the gifts and final transaction to "prove" it was gifted in accordance with the annual limits ?
I appreciate the wise counsel of this forum
I've been considering how I can transfer some real estate to my daughter and her husband and still stay within annual gift limits. Is it possible to gift fractional portions of real property ? (I desire to leave the estate tax exemption intact / unadjusted).
For example, assuming a residential property with a market value of $640k, and with annual gift limit moving to $16k in 2022, could my wife and I gift $64k worth of the property to the young couple each year for 10 years and then turn the grant deed over to them at that time? (It might be more than 10 years if property value grows some over that period).
If this is possible, how would one document the gifts and final transaction to "prove" it was gifted in accordance with the annual limits ?
I appreciate the wise counsel of this forum
Last edited by BernardShakey on Tue Dec 07, 2021 9:26 pm, edited 1 time in total.
An important key to investing is having a well-calibrated sense of your future regret.
Re: Can I gift a house ?
You can gift entire house at once, and file a gift tax return to track you are still under the lifetime gift limit, and pay no gift tax.
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Re: Can I gift a house ?
Right, I should have stated that I desire to leave the amount of my estate tax exemption intact / unadjusted.
An important key to investing is having a well-calibrated sense of your future regret.
Re: Can I gift a house ?
You can probably do that with a quit claim deed or some such device that gives your daughter partial ownership of the house. File that with the city or county or whatever government agency handles title to the property.
Re: Can I gift a house ?
Even if you can it may be a bad idea. There are two problems with that;
1) If they get divorced the son in law may get half of it.
2) Since it is a gift they will still have your cost basis which could be very low so that when they sell it they could be hit with a huge capital gains tax bill that could have been avoided. If they inherit it someday then they will get it as a stepped up cost basis under the current laws.
You should really talk to a estate planning lawyer about how to transfer the house to them. I don't know much about that but I suspect that there may be be some way to set the house in a trust where the house could be safe in a divorce and then eventually transferred to them at a stepped up cost basis.
1) If they get divorced the son in law may get half of it.
2) Since it is a gift they will still have your cost basis which could be very low so that when they sell it they could be hit with a huge capital gains tax bill that could have been avoided. If they inherit it someday then they will get it as a stepped up cost basis under the current laws.
You should really talk to a estate planning lawyer about how to transfer the house to them. I don't know much about that but I suspect that there may be be some way to set the house in a trust where the house could be safe in a divorce and then eventually transferred to them at a stepped up cost basis.
Re: Can I gift a house ?
You also might want to have a contact written up that states what rights and responsibilities a partial owner has in the house.
Re: Can I gift a house ?
This sounds like way more complexity and litigation potential than it's worth.
Imagine trying to litigate problems with tenants when you have three owner parties, one of which is a divorced husband.
Imagine trying to litigate problems with tenants when you have three owner parties, one of which is a divorced husband.
Re: Can I gift a house ?
While it'd be slower, it'd be wiser to gift her cash and let her invest it until it's enough to buy it from you.
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Re: Can I gift a house ?
Beneficiary deed?
Seek legal counsel for estate planning setup.
j
Seek legal counsel for estate planning setup.
j
Re: Can I gift a house ?
How about this method that keeps this clean and concise:
Seller her the house with a seller-finance low-interest loan. She owns the house outright and the house is no longer in your estate. But the balance of the loan is. This action fixes your $ interest in the house and any appreciation is on her balance sheet.
The following url gives applicable minimum rates.
https://www.irs.gov/applicable-federal-rates
You said the house is "real-estate". If it is not your primary residence, you would need to pay the capital gains on the sale of this property.
Treat the loan to her as a real loan having her make the monthly payments on time. If she does not have this minimum income to make these payments ($22,000 ($640K/30 years plus minimal interest)), she doesn't have the means to maintain the house and shouldn't own it.
Every year, you and your wife forgive $60,000 to her and her husband. Thus, reduce the payment by adjusting the amortization schedule, and repeat each year. When the balance of the loan is zero by payment or forgiveness, record the payment of the seller-financed loan to the county.
You would have to report the minimal interest on your tax return.
To close the circle, you can deposit her payments into a separate account, and gift her and her husband $64,000 a year after repayment until the balance of that account is closed.
Seller her the house with a seller-finance low-interest loan. She owns the house outright and the house is no longer in your estate. But the balance of the loan is. This action fixes your $ interest in the house and any appreciation is on her balance sheet.
The following url gives applicable minimum rates.
https://www.irs.gov/applicable-federal-rates
You said the house is "real-estate". If it is not your primary residence, you would need to pay the capital gains on the sale of this property.
Treat the loan to her as a real loan having her make the monthly payments on time. If she does not have this minimum income to make these payments ($22,000 ($640K/30 years plus minimal interest)), she doesn't have the means to maintain the house and shouldn't own it.
Every year, you and your wife forgive $60,000 to her and her husband. Thus, reduce the payment by adjusting the amortization schedule, and repeat each year. When the balance of the loan is zero by payment or forgiveness, record the payment of the seller-financed loan to the county.
You would have to report the minimal interest on your tax return.
To close the circle, you can deposit her payments into a separate account, and gift her and her husband $64,000 a year after repayment until the balance of that account is closed.
Re: Can I gift a house ?
xyzzy
Last edited by mary1492 on Mon Oct 03, 2022 12:23 pm, edited 1 time in total.
Re: Can I gift a house ?
This is an idea to explore with a CPA and estate/ real estate attorneychemocean wrote: ↑Wed Dec 08, 2021 7:25 am How about this method that keeps this clean and concise:
Seller her the house with a seller-finance low-interest loan. She owns the house outright and the house is no longer in your estate. But the balance of the loan is. This action fixes your $ interest in the house and any appreciation is on her balance sheet.
The following url gives applicable minimum rates.
https://www.irs.gov/applicable-federal-rates
You said the house is "real-estate". If it is not your primary residence, you would need to pay the capital gains on the sale of this property.
Treat the loan to her as a real loan having her make the monthly payments on time. If she does not have this minimum income to make these payments ($22,000 ($640K/30 years plus minimal interest)), she doesn't have the means to maintain the house and shouldn't own it.
Every year, you and your wife forgive $60,000 to her and her husband. Thus, reduce the payment by adjusting the amortization schedule, and repeat each year. When the balance of the loan is zero by payment or forgiveness, record the payment of the seller-financed loan to the county.
You would have to report the minimal interest on your tax return.
To close the circle, you can deposit her payments into a separate account, and gift her and her husband $64,000 a year after repayment until the balance of that account is closed.
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Re: Can I gift a house ?
Not everyone wants to assume that limit will remain unchanged for decadesmary1492 wrote: ↑Wed Dec 08, 2021 7:41 amWhen you die you plan to have $12 million ($24 million joint) or more to your name?BernardShakey wrote: ↑Tue Dec 07, 2021 9:25 pmRight, I should have stated that I desire to leave the amount of my estate tax exemption intact / unadjusted.
Re: Can I gift a house ?
I often see house sales for $1 between family members in the paper. How does this apply to this situation?
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Re: Can I gift a house ?
Every time this comes up. Every time people have to be reminded that not only can the law change, but that even now some states have very different limits. MA, for example, has a $1M Cliff limit (if you’re over $1M, you get taxed on everything over $40k).dukeblue219 wrote: ↑Wed Dec 08, 2021 7:48 amNot everyone wants to assume that limit will remain unchanged for decadesmary1492 wrote: ↑Wed Dec 08, 2021 7:41 amWhen you die you plan to have $12 million ($24 million joint) or more to your name?BernardShakey wrote: ↑Tue Dec 07, 2021 9:25 pmRight, I should have stated that I desire to leave the amount of my estate tax exemption intact / unadjusted.
I get the FI part but not the RE part of FIRE.
Re: Can I gift a house ?
I also don’t know why you don’t wish to use some of your lifetime exemption but, given that, how about incorporating the property and giving shares of the corporation? Your earlier posts indicate you have little risk of ever paying estate or gift tax.
Gill
Gill
Last edited by Gill on Wed Dec 08, 2021 8:23 am, edited 1 time in total.
Cost basis is redundant. One has a basis in an investment |
One advises and gives advice |
One should follow the principle of investing one's principal
Re: Can I gift a house ?
Well, in the OP, they assume at least one decade.dukeblue219 wrote: ↑Wed Dec 08, 2021 7:48 amNot everyone wants to assume that limit will remain unchanged for decadesmary1492 wrote: ↑Wed Dec 08, 2021 7:41 amWhen you die you plan to have $12 million ($24 million joint) or more to your name?BernardShakey wrote: ↑Tue Dec 07, 2021 9:25 pmRight, I should have stated that I desire to leave the amount of my estate tax exemption intact / unadjusted.
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Re: Can I gift a house ?
Here is a relevant link involving tenants in common and quit claim deeds:
https://legalbeagle.com/13609670-the-tr ... -deed.html
https://legalbeagle.com/13609670-the-tr ... -deed.html
Re: Can I gift a house ?
Under current law the limit will be halved (the baseline for CPI adjustment that is) after 2025 unless Congress acts otherwise. So, under the 'assume current law' dictum ~$12/24 is only relevant if you're on your last legs. Not that a large % of people have ~6/12 either, but the only relevant thing for individual action is what you have or might have, not what % of other people have it. Also, some state limits are lower, and your statement is also true: whatever's written now is not written in stone forever anyway, even forum moderators can't make it so.dukeblue219 wrote: ↑Wed Dec 08, 2021 7:48 amNot everyone wants to assume that limit will remain unchanged for decadesmary1492 wrote: ↑Wed Dec 08, 2021 7:41 amWhen you die you plan to have $12 million ($24 million joint) or more to your name?BernardShakey wrote: ↑Tue Dec 07, 2021 9:25 pmRight, I should have stated that I desire to leave the amount of my estate tax exemption intact / unadjusted.
Re: Can I gift a house ?
Can't you just sell it to them at a very reduced cost?
If the house is work $640k and paid off, why not sell it to them for like $150k?
If the house is work $640k and paid off, why not sell it to them for like $150k?
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Re: Can I gift a house ?
^ This (well, these).Watty wrote: ↑Tue Dec 07, 2021 9:35 pm Even if you can it may be a bad idea. There are two problems with that;
1) If they get divorced the son in law may get half of it.
2) Since it is a gift they will still have your cost basis which could be very low so that when they sell it they could be hit with a huge capital gains tax bill that could have been avoided. If they inherit it someday then they will get it as a stepped up cost basis under the current laws.
You should really talk to a estate planning lawyer about how to transfer the house to them. I don't know much about that but I suspect that there may be be some way to set the house in a trust where the house could be safe in a divorce and then eventually transferred to them at a stepped up cost basis.
Re: Can I gift a house ?
The difference between fair market value and the selling price is a gift. Whether that has any meaningful impact on their taxes and estate would need to be determined.
This is the reason that the IRS mandates a minimum interest rate for loans. Even if the loaner chooses not to collect the interest, they will need to report it (and pay taxes!) to the IRS. Otherwise you could effectively loan your estate away for 0.001%.
Re: Can I gift a house ?
Think about it. The IRS isn't stupid. Doesn't this smell like a gift of $490,000? The IRS thinks so too and treats it accordingly.
Gill
Cost basis is redundant. One has a basis in an investment |
One advises and gives advice |
One should follow the principle of investing one's principal
Re: Can I gift a house ?
My mother decided to bequeath one of her two homes to my youngest sister for reasons I won't go into here. She spoke with me with me and my other sister first to clear it with us, then she met with her attorney who handles her trust and worked everything through him. I don't know all the transfer details but it will count against her future estate and will be deducted from her share after my mother passes. No one paid a gift tax.BernardShakey wrote: ↑Tue Dec 07, 2021 9:05 pm Good evening,
I've been considering how I can transfer some real estate to my daughter and her husband and still stay within annual gift limits. Is it possible to gift fractional portions of real property ? (I desire to leave the estate tax exemption intact / unadjusted).
For example, assuming a residential property with a market value of $640k, and with annual gift limit moving to $16k in 2022, could my wife and I gift $64k worth of the property to the young couple each year for 10 years and then turn the grant deed over to them at that time? (It might be more than 10 years if property value grows some over that period).
If this is possible, how would one document the gifts and final transaction to "prove" it was gifted in accordance with the annual limits ?
I appreciate the wise counsel of this forum
It's best to speak to a professional in your state and set up the paperwork and transfer through him or her.
- willthrill81
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Re: Can I gift a house ?
Still, if someone has anywhere near that level of assets, they would be far better served by finding an excellent estate tax planner than soliciting advice here. State tax laws on this vary tremendously as well, and such a planner will know how to deal with that in the OP's state.dukeblue219 wrote: ↑Wed Dec 08, 2021 7:48 amNot everyone wants to assume that limit will remain unchanged for decadesmary1492 wrote: ↑Wed Dec 08, 2021 7:41 amWhen you die you plan to have $12 million ($24 million joint) or more to your name?BernardShakey wrote: ↑Tue Dec 07, 2021 9:25 pmRight, I should have stated that I desire to leave the amount of my estate tax exemption intact / unadjusted.
Why? $640k is only 5.3% of the current estate tax exemption level for a single person and 2.6% for a married couple.BernardShakey wrote: ↑Tue Dec 07, 2021 9:25 pmRight, I should have stated that I desire to leave the amount of my estate tax exemption intact / unadjusted.
The Sensible Steward
Re: Can I gift a house ?
xyzzy
Last edited by mary1492 on Mon Oct 03, 2022 12:22 pm, edited 1 time in total.
Re: Can I gift a house ?
I'm not sure whether you can gift fractional interests in real property, but you can give fractional interests in real property. You would do it by a deed.BernardShakey wrote: ↑Tue Dec 07, 2021 9:05 pm ... Is it possible to gift fractional portions of real property? ...
The reason not to put it into a corporation is that If you put real estate into a corporation, when a shareholder dies, there's a basis step-up for the decedent's shares, but not for the real estate.
Re: Can I gift a house ?
Yes, should have thought of that. How about a partnership?
Gill
Cost basis is redundant. One has a basis in an investment |
One advises and gives advice |
One should follow the principle of investing one's principal
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Re: Can I gift a house ?
Maybe, but unlikely. But more important is that the estate tax exemption can change with legislation. Not too long ago it was like $1M.mary1492 wrote: ↑Wed Dec 08, 2021 7:41 amWhen you die you plan to have $12 million ($24 million joint) or more to your name?BernardShakey wrote: ↑Tue Dec 07, 2021 9:25 pmRight, I should have stated that I desire to leave the amount of my estate tax exemption intact / unadjusted.
An important key to investing is having a well-calibrated sense of your future regret.
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Re: Can I gift a house ?
The question was posed regarding just the one property. There are some others. I have some good estate tax planning help but from time to time the advice here helps me structure / formulate discussions with the estate planning attorney.willthrill81 wrote: ↑Wed Dec 08, 2021 10:45 amStill, if someone has anywhere near that level of assets, they would be far better served by finding an excellent estate tax planner than soliciting advice here. State tax laws on this vary tremendously as well, and such a planner will know how to deal with that in the OP's state.dukeblue219 wrote: ↑Wed Dec 08, 2021 7:48 amNot everyone wants to assume that limit will remain unchanged for decadesmary1492 wrote: ↑Wed Dec 08, 2021 7:41 amWhen you die you plan to have $12 million ($24 million joint) or more to your name?BernardShakey wrote: ↑Tue Dec 07, 2021 9:25 pmRight, I should have stated that I desire to leave the amount of my estate tax exemption intact / unadjusted.
Why? $640k is only 5.3% of the current estate tax exemption level for a single person and 2.6% for a married couple.BernardShakey wrote: ↑Tue Dec 07, 2021 9:25 pmRight, I should have stated that I desire to leave the amount of my estate tax exemption intact / unadjusted.
An important key to investing is having a well-calibrated sense of your future regret.
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Re: Can I gift a house ?
Appreciate your thoughtful response. I will pursue this one at my upcoming meeting with my estate planning attorney/CPA. Thanks.chemocean wrote: ↑Wed Dec 08, 2021 7:45 amThis is an idea to explore with a CPA and estate/ real estate attorneychemocean wrote: ↑Wed Dec 08, 2021 7:25 am How about this method that keeps this clean and concise:
Seller her the house with a seller-finance low-interest loan. She owns the house outright and the house is no longer in your estate. But the balance of the loan is. This action fixes your $ interest in the house and any appreciation is on her balance sheet.
The following url gives applicable minimum rates.
https://www.irs.gov/applicable-federal-rates
You said the house is "real-estate". If it is not your primary residence, you would need to pay the capital gains on the sale of this property.
Treat the loan to her as a real loan having her make the monthly payments on time. If she does not have this minimum income to make these payments ($22,000 ($640K/30 years plus minimal interest)), she doesn't have the means to maintain the house and shouldn't own it.
Every year, you and your wife forgive $60,000 to her and her husband. Thus, reduce the payment by adjusting the amortization schedule, and repeat each year. When the balance of the loan is zero by payment or forgiveness, record the payment of the seller-financed loan to the county.
You would have to report the minimal interest on your tax return.
To close the circle, you can deposit her payments into a separate account, and gift her and her husband $64,000 a year after repayment until the balance of that account is closed.
An important key to investing is having a well-calibrated sense of your future regret.
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Re: Can I gift a house ?
That estate tax exemption changes frequently. There is likely to be some inheritance in the picture as well. I'm not against using some of the exemption but if there is a way to avoid it without being too onerous, I'd like to at least consider it.
An important key to investing is having a well-calibrated sense of your future regret.
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Re: Can I gift a house ?
Haha, yes why not do now. The situation with the young couple is such that this is something I'm considering in a few years, not right now.mary1492 wrote: ↑Wed Dec 08, 2021 12:25 pmSo if you have so much and believe the limit will be (possibly significantly) lower in the future, all the more reason to use it up under current regulations while the limit is so high, before it is lowered.dukeblue219 wrote: ↑Wed Dec 08, 2021 7:48 amNot everyone wants to assume that limit will remain unchanged for decadesmary1492 wrote: ↑Wed Dec 08, 2021 7:41 amWhen you die you plan to have $12 million ($24 million joint) or more to your name?BernardShakey wrote: ↑Tue Dec 07, 2021 9:25 pmRight, I should have stated that I desire to leave the amount of my estate tax exemption intact / unadjusted.
An important key to investing is having a well-calibrated sense of your future regret.
Re: Can I gift a house ?
Maybe gift it to an irrevocable trust? That could be used to get it out of your estate now, but you could delay when it goes to the beneficiaries.BernardShakey wrote: ↑Wed Dec 08, 2021 2:51 pmHaha, yes why not do now. The situation with the young couple is such that this is something I'm considering in a few years, not right now.mary1492 wrote: ↑Wed Dec 08, 2021 12:25 pmSo if you have so much and believe the limit will be (possibly significantly) lower in the future, all the more reason to use it up under current regulations while the limit is so high, before it is lowered.dukeblue219 wrote: ↑Wed Dec 08, 2021 7:48 amNot everyone wants to assume that limit will remain unchanged for decadesmary1492 wrote: ↑Wed Dec 08, 2021 7:41 amWhen you die you plan to have $12 million ($24 million joint) or more to your name?BernardShakey wrote: ↑Tue Dec 07, 2021 9:25 pm
Right, I should have stated that I desire to leave the amount of my estate tax exemption intact / unadjusted.
Of course, if it's out of your estate they lose the step-up on when you pass. You should talk to an estate attorney.
- willthrill81
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Re: Can I gift a house ?
The Sensible Steward
Re: Can I gift a house ?
Maybe that's not a 100% serious statement but for the record, the way the calculation of exemption works, to get any benefit from 'using it now' assuming the limit is halved, which happens under current law after 2025 (the pre inflation baseline will be halved), you have to give away more than half of the current limit. For example, assume a couple with 24mil and ignore inflation adjustment or portfolio growth between now and end of 2025. If they just give away a $640k house that doesn't accomplish anything with regard to the currently scheduled reduction in the exemption. The couple's post-2025 exemption without giving the house away would have been $12mil. Giving the house away it would be $11.36mil: the then current limit minus previous gifts (excluding gifts under the $15k/yr/giver-recipient pair annual limit), with a minimum of zero. To get benefit from acting before the end of 2025, they must bring the 'minimum of zero' part into play. So, if the couple gave away 18mil now, their post 2025 limit would be zero (not -6mil), and future estate tax on 6mil would be avoided by acting now.mary1492 wrote: ↑Wed Dec 08, 2021 12:25 pmSo if you have so much and believe the limit will be (possibly significantly) lower in the future, all the more reason to use it up under current regulations while the limit is so high, before it is lowered.dukeblue219 wrote: ↑Wed Dec 08, 2021 7:48 amNot everyone wants to assume that limit will remain unchanged for decadesmary1492 wrote: ↑Wed Dec 08, 2021 7:41 amWhen you die you plan to have $12 million ($24 million joint) or more to your name?BernardShakey wrote: ↑Tue Dec 07, 2021 9:25 pmRight, I should have stated that I desire to leave the amount of my estate tax exemption intact / unadjusted.
IOW it's the fact that this house has low value relative to the limit, not just that 'almost nobody has that much money', that makes the currently scheduled estate tax exemption reduction of limited relevance here. It could conceivably be relevant if the house was one among many transfers, assuming a much bigger reduction in the federal limit than the one now scheduled, or possibly wrt to state estate tax in some states.