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Parents want to gift me their home and unsure of gift tax
Their home is worth about $1M and I'm unclear of any gift tax laws or what other consequences would come from the gift. I feel I should know better but it is all a tad confusing. What should I know about this and what steps would you suggest I take next? Thank you
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C
I can understand that this stuff isn't so easy! Does the home have a mortgage attached to it? From what I understand of your situation, your parents will need to file a gift tax return reporting the transfer, and the value of the home will count towards the amount they can gift in their lifetime without gift tax consequences (called the lifetime exclusion amount). That is $11M per person, so $22M for both parents. $1M is well below, so all good from a gift tax angle. And know that the value reported will be the fair market value (FMV) of the home minus any mortgage obligation (if any).
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J
Let me add here that I would advise you to speak with a lawyer and tax advisor. The extra $1-2K you might spend may save you a whole lot more. We can share very quick snaps of what we think but don't know your personal situation to say things too concretely here. In such situations, I would highly recommend it. Good luck.
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C
Yeah I think I should get some professional consultations here. You're right @JoelTheK. @Clara373 appreciate the color-I didn't know about lifetime gifting rules.
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J
@Cleo283 Good to hear it. Just a word of advice though, don't sell the home right away until you get the advice or else you may be faced with a steep tax. Usually, the original cost (or basis) of the property becomes the tax basis for you. Example: say your parents bought the house years ago for $500,000 and it is now worth $I,000,000. When they gift it to you, the cost basis is $500,000. If you sell the house right away, you will have to pay capital gains taxes on the difference between $500K and the selling price. The only way for you to avoid this tax is for you to live in the house for at least two years before selling it. In that case, you could exclude up to $250,000 ($500,000 for a couple) of your capital gains from taxes.
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@Cleo283 I agree that it's always worth getting some outside advice on a situation like this!
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