What are the tax ramifications for transferring home ownership from a parent to a child?
My parents want to transfer the title of their home to me. I've read about real estate trusts, wills, and quit claim deeds, but am having trouble making sense of everything.
What is a simple way for my parents to transfer the title to me, while minimizing my tax liability? In addition, there is about $70k left on the mortgage, and I still have student loans. Is there a way to structure the transaction and post-transaction so that the loan payments lower my tax liabilities?
Please let me know if you can help, or if you can point out how I should find a lawyer to help me navigate this process.
Thanks in advance.
Remember that when you gift assets, there is a carry-over basis. This means that if Mom and Dad gift you a house they bought for $10,000 that is worth $100,000 and then you go to sell it in a few years for $150,000, you owe capital gains tax on the full appreciation ($150,000-$10,000=$140,000).
There are tax breaks in the Internal Revenue Code. Section 121 excludes capital gains if the house being sold is your primary residence (you have lived there 2 of the last 5 years) up to $250,000 for individuals and up to $500,000 for married couples.
Additionally, if your parents pass the house to you through the estate of the second to die, you get a full step-up in basis to the date of death value.
I would contact a local attorney about a transfer with retained life estate deed from your parents to you and see if that is suitable for your needs.
This answer is made for educational purposes only. By using or participating in this site you understand that... more
This answer is made for educational purposes only. By using or participating in this site you understand that there is no attorney client privilege between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed professional attorney that practices in the subject practice discipline and with whom you have an attorney client relationship along with all the privileges that relationship provides. 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. To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer, or (ii) in promoting, marketing or recommending to another party, any partnership, investment plan, arrangement, legal structure or other transaction addressed herein.
You are right to be asking questions, and as others have already mentioned, please have your parents speak to an estate planning attorney before signing over the property. There are many, many issues they, and you, need to be aware of before making this decision, and so many parents have come to regret signing a deed before receiving the right legal advice.
They should receive an attorney's advice and tell the attorney the goals they are trying to achieve by transferring the home to you, so the attorney can determine if a deed transfer now is the best way to accomplish their goals, or if another method would be more favorable to them, and to you. The future plans your parents have for the home would also need to be carefully considered by the attorney.
There are capital gains tax issues, property tax issues, and as you mentioned, income tax issues, plus potential gift/estate tax issues involved in the transfer, and a transfer to you now may not be the best way for you to receive the home in terms of all the tax ramifications to you. California also has community property laws which could affect the timing of the transfer as well.
If a transfer to you now is still determined to be the best option, there are also several different trust vehicles that could be used to provide asset protection and other benefits to you, that are far superior to simply signing a deed for the property over to you. Especially since you mention that you have student loan debts of your own.
There are many ways to structure this transfer to give you all the benefits you want, plus many benefits you may not know you need. Please feel free to have you parents call our Norcal office for a consultation.
The comments contained herein are not be be construed as legal advice, and no action should be taken on your case... more
The comments contained herein are not be be construed as legal advice, and no action should be taken on your case without having a full, in person consultation with a qualified attorney. The general information contained herein cannot be relied upon in making any legal decision or taking any action.
Home made deeds and home grown estate planning may cost you dearly in the long run. There are tons of issues you are not aware of. See a qualified estate planner in your area!
This comment is general in nature and is not intended as legal advice. It does not create an attorney client... more
This comment is general in nature and is not intended as legal advice. It does not create an attorney client relationship and obviously is not confidential. You should contact an attorney in your area who can review with you all of the relevant facts and give you specific legal advice.
I agree with Attorney Luthmann. A lady bird deed may well be the best option for you. That is a quit claim deed where the grantors retain a life estate in the property. The title passes upon the death of the second spouse, giving you a step up in basis, so that you do not need to recognize any gain for income tax purposes.
Your parents should also ask about setting up durable power of attorney forms for health care and financial matters, if they have not already done so. This will allow you to avoid the need for probate appointment of a guardian and conservator, if either of your parents become incapacitated at some point.
All of these forms should be prepared by an attorney to make sure it is done properly.
I am licensed to practice law in the State of Michigan and have offices in Wayne and... more
I am licensed to practice law in the State of Michigan and have offices in Wayne and Ingham Counties. My practice is focused in the areas of estate planning and probate administration.
I am ethically required to state that the above answer does not create an attorney/client relationship. These responses should be considered general legal education and are intended to provide general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer.
Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state. If I refer to your state's laws, you should not rely on what I say; I just did a quick Internet search and found something that looked relevant that I hoped you would find helpful. You should verify and confirm any information provided with an attorney licensed in your state.
Both attorney offer excellent general advice concerning the basis implications for lifetime gifts and in a lady bird context. But really your parents need to get with an estate planning attorney to sit down and go over all their assets and goals to get a well conceived, comprehensive estate plan. For more on this and other issues, see Estate Planning Mistakes: 5 Not So Easy Pieces at http://www.sjfpc.com/estate_planning_drafting_w...
Hope this helps.
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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 email@example.com , his website for more tax, estate and business articles is www.sjfpc.com. and his blog is
Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia... more
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 firstname.lastname@example.org , his website is www.sjfpc.com. and his blog is
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.
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