- April 18, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Selling a House to a Family Member: Tax Implications
I have owned my current residence for two decades, and I do not have any outstanding mortgage on the property. I am considering selling the house to my adult son for a nominal amount of one dollar. I am wondering, will either of us be subject to significant tax implications as a result of this transaction?
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Unless your estate is north of 12 million dollars there is no tax owed from giving it to your son. You will need to fill out the gift form and file it with your taxes since it will be over the yearly exemption amount, but all this does is count it against your lifetime exemption.
As a gift, your son will inherit your tax basis. If he sells his profit will be the difference from your purchase price to the sales price.
If you give him the house after you pass, his cost is the value as of the date of your passing.
Do not sell the house to your son. Talk to an estate planner and get a trust set up. I’m oversimplifying this, but your son just needs to be the beneficiary of the trust.
I would just put the home in a living trust with him as the beneficiary. No tax implications there
It would be considered a gift and fall under gift/estate tax laws.
Put the house in a trust and make son the beneficiary of the trust so he inherits the house when you die. No longer belongs to you so in three years Medicare can not take it.
This way son will inherit at current value so no taxes due if he ever has to sell.
From a pure tax standpoint, the best thing is for your son to inherit the property on your death. That way the cost basis resets.
So if you could lease the house until your death, that would be ideal. You can “gift” rent.
Selling under market price is essentially skirting the gifting laws. If you give it outright, the cost basis follows the house. So when he sells, he may have a huge tax bill.
The cost basis is stepped up for your son if it is inherited as opposed to transferred, is typically a relevant consideration.
There is a cost basis benefit of just keeping it in your name until you pass on the house to your son after you die. Another benefit of keeping the house in your name is that there are often lower real estate taxes for old folks. As some others have said there could be risks from medical bills swallowing the assets of the estate and therefore the house once you die so that is another thing to think about.
**Do not do this.**
Get to an estate planning attorney. You could drive his eventual capital gains taxes through the roof.
Anyone on the internet who advises other than the above is guessing not knowing your basis, the home value, your ages, state, health, tax brackets etc.
Go to an estate planning attorney or pick the best guess in this thread.
Yes it is taxable, at least at the federal level. You would have to pay gift tax on the fair market value of your home minus $18,001 (which is the gift exclusion amount for 2024 plus one dollar, since the dollar you are charging your son is not a gift). However, you can avoid having to pay federal tax on the transfer if you apply the value of the gift to your Unified Tax Credit (UTC), which is currently $13,610,000 for individual taxpayers. You can do that by filing Form 709 with your federal tax return.
So, here is how it works. Let’s say the fair market value of your home is $1,000,000. You are selling it for $1. That means the value of the gift to your son is $999,999. The annual gift exclusion is the value you can gift to any individual for any given year without having to pay tax on the gift. For 2024, the gift exclusion is $18,000. So, the taxable value of your gift is $981,999. However, you can apply this amount to your UTC. The UTC is currently $13,610,000 for individual taxpayers, and $27,220,000 for married couples. The value of any gifts you give which exceed the annual gift exclusion amount can be made tax free to the extent you have any remaining UTC. So, assuming you have never used your UTC, you should have the entirety of the current UTC available to you: $13,610,000 if you are single, or $27,220,000 if you are married.
You would use Form 709 to tell the IRS that you are going to use up some of your UTC this year. Since the taxable portion of your gift is $981,999, you would tell the IRS that you are using $981,999 of your UTC. This leaves you with $12,628,001 to give away in future years if you are single, and 26,238,001 if you are married (these amounts are subject to change in future years, but you don’t have to worry about that unless you plan on gifting millions of dollars worth of assets before you die).
That’s it. By using Form 709 to tell the IRS that you are applying the taxable value of your gift to your UTC, you do not have to pay tax on the gift. However, I can’t speak to any possible state tax consequences that you may have.
Fun fact: mega rich people cut up and modify their assets worth hundreds of millions of dollars in arbitrary ways to reduce the value so that they fit within the UTC. I.e., a rich couple with two kids can cut their $30 million dollar business in half, and gift the pieces which are each worth significantly less than $15 million to each kid while staying under their UTC limit of $27,220,000, since half a business is not worth its representative share as the recipient can’t fully control a business with a 50% interest in it. That’s just the tip of the iceberg. People fit hundreds of millions worth of assets into the UTC.
Don’t sell it for $1. Gift it to him outright. Unless you’ve got millions and are above the federal tax exclusion, really not a big deal.
Reading all this only indicates to me how bloated and excessive the tax code is in the USA, such a joke.
Hi I’m a CPA.
You would have a sale at FMV of the property, and would have to report it as such. Then you would file a gift return showing that you gifted your son the proceeds to buy it.
So essentially your taxes would be exactly the same as selling, but you wouldn’t receive any of the money.
Another commenter already said, the absolute best way to give property to heirs is inheritance at death.
You will have to file forms that use the market value of the home as part of your lifetime exemption. At the federal level that likely means no tax consequence (it would just reduce your lifetime but may have some state tax consequences.
The good news is that you can treat this as a gift, and doing so will reset the cost basis to current market value.
That said, I think putting the house in a trust with your son as the beneficiary may be the right call. But since (at least) hundreds of thousands of dollars are on the line, I wouldn’t go cheap here. I’d get a lawyer specializing in trusts in your state. In this situation that’s likely money well spent. And also check to see, if you kept the house in a trust and let him live there for no rent or a reduced rent, about how “imputed income” may come into play.
Just sale it to him and gift him the equity on all but $1. No tax to you on the gift of equity
Why would you need to sell it it to him when you could just add him as a co owner with a quit claim?
Lawyer. Attorney. CPA. Barrister. Lawyer.
You need to have an expert in your local laws and your financial situation help you determine the best course of action. The random strangers on here are very smart and knowledgeable, but do not know your state laws and your finances.
Generally states have laws about “market value” regarding stuff like this. You’re not the first person to try and dodge taxes by selling something for a dollar, and you should consult a lawyer about your state laws in this regard.
After reading the comments, let me ask a follow up to OP’s question- Is it possible for him to sell the house to his son for an amount that would make the sale not qualify as a ‘gift’? If so, how much?
What state is the house in?
It may be better to put the house under the ownership of a trust, with your child as a beneficiary of that trust upon your passing rather than directly gifting it due to the potential tax implications when they’d eventually sell it. Talk to a real estate lawyer in your state.
pay an estate attorney a couple hundred bucks and do this correctly. a trust is likely the best path forward for both of you.
You should keep the home in your name, and your son will inherit the property. His basis will then be the fair market value when you pass (give or take 6 months). This will drastically reduce capital gains tax whenever he sells the home
NAL but this sounds like it would be considered a gift with value equal to the difference between the sale price and the current market value. From when I looked this up, the gift is only tax exempt up to around $16k, so the entire rest of hte purchase price would be subjected to taxes. This is different than leaving it in a will, which would then be considered an estate and generally exempted from taxes up to the 12 million dollar mark. You can apparently sell it for market value but then basically provide them the loan yourself instead of them getting a mortgage. The loan accrues interest but can be reduced by the 16k/year as you effectively gift them back the payments they make up to the tax free gift limit, for the loan to them be returned as part of your estate. Obviously consult an estate lawyer to do this as it is more complex than other options.
He’s going to owe a ton of taxes for anything over $250k when he goes to sell it later unless the gov’t raises the cap
My dad did this; No you don’t have tax implications. Your son will have to pay a capital gains tax upon the sale, but it is not a huge percentage. Go see a lawyer you trust that knows about real estate. It’s a very easy process and the filing fees were not much.
If you plan to just give your son the house, it may probably be best to put it into a trust and have your son as beneficiary. It avoids any gift taxes/sales taxes and ensures it passes correctly.
First off, NO. Not how it works. The government will value your house fairly; however, it won’t matter as it’s okay with the gift limit you most likely have not crossed.
Unless you sell your house to your son at fair market value, he’ll inherit your cost basis ($peanuts) and face huge capital gains if he were to sell.
I’m by no means a tax expert, but couldn’t OP sell his son the house at fair market value and then shortly after the check clears, give him the cash as a gift (which would count against his lifetime gift tax exemption of course).
Would this not achieve the same end result while setting the cost basis at fair market value for when/if the son were to sell?
Isn’t there like a $250,000 capital gains exemption if you live in the house for at least two years as your primary residence?
You need to talk to a real estate attorney/account.
You should also check rules regarding assessment caps. Some locations restrict the growth of property taxes but reset them to normal after transfer. There maybe rules for transfer to close relatives that apply.
For what is at risk here, you should consult with a tax professional that is familiar with local laws vs. a bunch of yahoos on Reddit. A simple few words difference in how you do this could be extremely expensive if you get it wrong.
If your son ends up selling the house he will owe the difference between what you bought it for and what he sold it for. Otherwise he does not need to pay anything else. You don’t even need to sell it to him for a dollar, just sign the deed over to him and that’s it.
I.E. You bought the house for $100,000. He sells the house for $500,000. He now owes capital gains tax on $400,000.
There are more tax-advantaged ways to do this, namely putting the property in a trust and handing over control of the trust. An actual professional will be able to explain this to you much better than I can, though.