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We plan to gift the half interest we have on the house with our son assuming our mortgage, what are the tax implications?

Santa Monica, CA |

We are living with our son currently. We own one half of the house and pays one half of the mortgage. We are planning to gift our half of the house to our son and he will refinance the mortgage so that he will be the only borrower of the mortgage since we both are retired. Should the basis of our gift one half of the purchase price or one half of the downpayment? What is the tax implication to us for the mortgage that is shifted to our son?

Attorney Answers 3


  1. Best answer

    Based on limited information - the gift is the value of the gift/property and has nothing to do with "basis" (which is generally purchase price paid, less depreciation). If you owned 1/2 - subject to debt, then take the net as the gift.

    If the property has appreciated (who knows in today's world) .. then it may or may not be better to keep house, gift in your Trust - property interest would get stepped up basis on date of death.

    Not sure if you are doing this because of the uncertainty of the $5million exclusion going to $1 million if our Congress/President do nothing through year end(after which it goes to the $1 million if nothing done).

    Note - you have he P-C exemption for property tax if you hung on to until death/then transfer. Same applies if you transfer now - buy again why? Assumption that you have owned for a long time anbd value has gone up - SM property has kept decent value as compared to anything east in general (other than BH, and surrounding area!).

    Also - keep in mind if you transfer to son - is subject to his creditors in general - impt since you live here!

    Review this with your CPA / attorney.

    This does not create an attorney/client relationship. This does not constitue legal advice. It is limited to facts of the question. You should consult an attorney in the appropriate state involved before making any decisions based on this answer


  2. His transferred basis will be half of the price paid for the home, plus any capital improvements made. I am going to assume you never depreciated it for business purposes. You have to be able to substantiate costs for capital improvements. Purchase price is generally available via county records.

    The gift will be valued as the difference between the FMV, and basis at the time of transfer. The amount that this gift exceeds $26,000(both you and your husband can each exclude $13,000 in gift to same person if you make election on return), will count against your Unified Credit.

    Your son will be able to deduct his portion of the home interest received on a 1098 in the future if he is liable for the loan. This is because he owns and lives in the home.

    Christopher Larson
    Insight Law
    www.insightlawfirm.com


  3. Both attorneys offer sound advice. In addition be aware that the house will still be included in your estate for tax purposes as you are still living there. So you will achieve no estate tax savings and the house will be taxable at your death. The only way around it would be for you to pay fair market value rent. This is a complicated situated that cries out for the assistance of an estates/elder law attorney as there are numerous tax and elder law implications.
    Oftentimes these transactions are a big mistake. For an article on doing what you are contemplating and how the IRS is policing this area please read IRS Checking Real Estate Transfers For Unreported Gifts at the following link: http://www.sjfpc.com/IRS_Auditing_Real_Estate_Gifts_Tax_Rules_Returns_Form_709.html

    Hope this helps.

    Please remember to designate a best answer to your question.

    Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336 or his email address is sjfpc@comcast.net , his website for more tax, estate and business articles is www.sjfpc.com. and his blog is

    LEGAL DISCLAIMER Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336 or his email address is sjfpc@comcast.net , his website is www.sjfpc.com. and his blog is <http://frommtaxes.wordpress.com/> Mr. Fromm is ethically required to state that the response herein is not legal advice and does not create an attorney/ client relationship. Also, there are no recognized legal specialties under Pennsylvania law. Any references to a trust, estate or tax lawyer refer only to the fact that Mr. Fromm limits his practice to these areas of the law. These responses are only in the form of legal education and are intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received. By using this site you understand and agree that there is no attorney client relationship or confidentiality between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your jurisdiction, who is familiar with your specific facts and all of the circumstances and with whom you have an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question or omitted from the question. Circular 230 Disclaimer - Any information in this comment may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

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