Need Advice The Best Way To Transfer Estate Property.
My parent own their home with the mortgage paid off several years ago. Now, my father is deceased. Note that the Deed is still under both my parent's name. I'm looking for the best way to transfer the home owner (my parent) to me that can avoid pay too much different types of taxes. If there is a must taxable involved, which type of tax that will need to pay at this case. Thanks in advance.
What is your goal? Are you looking to own your parents' house, or, are you hoping to minimize the estate taxes, probate, gift tax, and/or capital gains taxes on the property transfer after your mother's death?
When you ask about tranfer of ownership, how do you plan to accomplish this? Are you buying the property from your mother at FMV, or are you expecting your mother to gift the property to you?
Is your mother still living in the home?
My mother is still living in the home. My mother wants me to own my parents' house now. My mother will either give this house to me as gift or sell to me, whichever options that will minimize the estate taxes, probate, gift tax, and/or capital gains taxes on the property transfer.
To minimize the tax consequences for yourself as well as for your mother, to avoid probating the house as part of your mother's estate, and to eliminate gift tax issues, you the following options as I see it.
1. Buy the house from your mother at full market value. Assuming that your mother's profit will be $250K or less, all of her profit is exempt from capital gains taxes. Your mother inherited your father's half of the house at his stepped up basis, so add your mother's original cost basis for her half to the stepped up basis for your father's half to determine her cost basis.
2. Have your mother execute a revocable living trust. Deed the house to the trust. You mother can be the trustee with yourself named as sole beneficiary at her death. You can also be named as a substitute trustee in the event your mother wants to or needs to step aside. When your mother passes on, the assets of the trust are distributed to the beneficiary at its stepped up basis. No probate, no gift taxes, no capital gains taxes for your mother. No capital gains taxes for yourself if you decide to sell immediately after you take ownership. The trust is still part of your mother's taxable estate, so estate tax issues would come into play at her death if her total estate is greater than the federal unified credit ($1.5 million this year).
3. Have your mother gift you a partial ownership. Your mother can use her annual gift tax exclusion to gift $11K to you tax free eadh year. If the house is worth $220K today, your mother can add you to the deed with a 5% ownership. Since a gift of 5% ownership would be valued at $11K, this gift would be tax free. In subsequent years, a partial gift of her remaining interest would eventually transfer tax free, her entire ownership. Unfortunately for you, you receive the gift at her original basis. So if you ever decide to sell, your capital gains would be calculated from her cost basis (stepped up for inheritance from your father).
Best to discuss your mother's options with an estate planner.