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Gifting/Transferring real estate - what consequences?

Los Angeles, CA |

1. I own one property (100%) and half of another property - both are fully paid off without any mortgage or other lien. I want to transfer these to my brother. What federal or California tax implications are there to me or him? Both are rental properties and my brother does not intend to sell them (at least for a few years). 2. What if I were to transfer this to my brother's holding LLC which he will place in his trust. What tax or other implications of that? Your help is greatly appreciated!

Attorney Answers 3

  1. Your question is a bit broader than you may think. You really should meet with an estate planning attorney to discuss your goals and desires.

    The only real tax consequence immediately is reassessment for property taxes. There is no exclusion for transfers between siblings. As far as gift taxes, so long as you dont exceed your life time exclusion amount of $5.25M there wont be a gift tax. No California gift or estate tax.

    There are no realized capital gains tax or income taxes because of the transfer. You brother takes over your basis for future capital gains on sale and depreciation purposes.

    If you were to hold your property until death, the property would get a step up in basis including wiping out any recapture issues from prior depreciation.

    The general advice above does not constitute an attorney-client relationship: you haven't hired me or my firm or given me confidential information by posting on this public forum, and my answer on this public forum does not constitute attorney-client advice. IRS Circular 230 Disclosure: In order to comply with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. While I am licensed to practice in New York and California, I do not actively practice in New York. Regardless, nothing said should be deemed an opinion of law of any state. All readers need to do their own research or pay an attorney for a legal opinion if one is necessary or desired.

  2. Building one colleagues excellent answer, there are ways to make the transfer and retain favorable capital gains treatment, ie step up in basis at your death. See an estate planning attorney and ask him/her about an Irrevocable Income-Only Trust. Kudos for realizing the need for advance planning!

  3. I agree with the previous answers and add that a transfer to your brother's LLC will not reduce or change the tax consequences mentioned.

    The statements provided herein are meant for informational purposes only, and do not constitute legal advice. No attorney-client relationship is created by virtue of this response.

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