Family property transfer: Gifting real estate SITUATION This situation results in the creation of a life estate, which is discussed next.
(Basis is used to determine gain or loss when the home is later sold.)Īdding a family member to the deed while retaining a right to use the home exclusively for the rest of your life has different tax consequences. The surviving owner combines the stepped-up basis in the inherited portion with the basis received at the time of the gift to determine their total adjusted basis in the entire property. The surviving owner receives the decedent’s ownership interest with a stepped-up basis equal to the inherited property’s fair market value (generally the same amount included in the decedent’s gross estate). When one of the owner(s) of the property die, the decedent’s personal representative must include the fair market value of the decedent’s ownership interest in the gross estate for estate tax purposes. Additionally, each owner will have to adjust their basis in their respective ownerships interests on the date of the transfer. However, they will not likely owe gift tax due to the unified gift and estate tax exemption, which is $12,060,0. If the value of the gift exceeds the annual exclusion limit ($16,0) the donor will need to file a gift tax return (via Form 709) to report the transfer. TAX CONSEQUENCEĪdding a family member to the deed as a joint owner for no consideration is considered a gift of 50% of the property’s fair market value for tax purposes. You add another family member to the deed as a joint owner of your home so that it will pass to them automatically upon your death. Thus, here are common property transfer scenarios between family members and the respective tax implications: Family property transfer: Adding a joint owner SITUATION There are other non-tax related issues to consider before attempting the property transfer by deed, will, or trust.
While property transfers can be useful to accomplish a particular goal, not all taxpayers consider the tax consequences. Whether it’s to pass down your legacy to loved ones or a part of an estate planning strategy, these transactions happen for many reasons. Real estate transfers are common among family members. Read on as we dive into a few common scenarios if you give property to a family member. Editor’s Note: Transferring property to a family member could have tax consequences.
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