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Message
Buying home from parents
Posted on 7/21/24 at 7:02 pm
Posted on 7/21/24 at 7:02 pm
My dad wants to leave his property without a will. What’s the best way to avoid taxes?
Can he sell it us for a dirt cheap price? If so, what are tax implications
What’s the best way for him to do this?
I’m just trying to look the best possible way. Please advise
He doesn’t trust the will due to my step mom being able to contest it
Can he sell it us for a dirt cheap price? If so, what are tax implications
What’s the best way for him to do this?
I’m just trying to look the best possible way. Please advise
He doesn’t trust the will due to my step mom being able to contest it
This post was edited on 7/21/24 at 7:05 pm
7
Posted on 7/21/24 at 7:09 pm to glorymanutdtiger
How old is your dad? Including the value of the house, what would you roughly estimate the total value of the estate to be when he passes?
Posted on 7/21/24 at 7:13 pm to Joshjrn
He is in his 70s and I would say it’s around 300-400
Posted on 7/21/24 at 7:21 pm to glorymanutdtiger
quote:
He is in his 70s and I would say it’s around 300-400
Take what I'm about to say with a giant grain of salt, as this is way outside of my professional wheelhouse, and I've only done some internet research on the subject previously, so hopefully an estate/tax bro chimes in. With that caveat in mind...
First, "selling" you the house below market value will be considered a "gift" for the difference in amount, so don't try to get cute with it. Second, my understanding is that, while the current annual gift limit is $18,000, it's a common misconception that giving a gift above that amount triggers a taxable event. My understanding is that a gift above that amount in a single year triggers the need to file a Form 709 with the IRS alerting them to the gift. The amount of that gift above the $18,000 would then later be subtracted from the total estate exemption, currently just north of $13MM.
So in summary, it's my understanding that he could gift you the house now, file a Form 709, no one would pay taxes on the gift, and as long as the total estate value at death stays below $12MM-$13MM, there would be no taxable event.
But please, please, please do not take my word for it. Go talk to someone who does this for a living
Posted on 7/21/24 at 7:32 pm to glorymanutdtiger
If he's married the current estate tax exemption amount is 27m. Doubt you'll have to worry about estate taxes. Buying it now or him transferring it to you is a bad idea. If you inherit it you'll receive a full step up in basis, meaning you can avoid capital gains if you go to sell it after he passes
Posted on 7/21/24 at 7:41 pm to TheOcean
quote:
If he's married the current estate tax exemption amount is 27m. Doubt you'll have to worry about estate taxes. Buying it now or him transferring it to you is a bad idea. If you inherit it you'll receive a full step up in basis, meaning you can avoid capital gains if you go to sell it after he passes
The issue is that dad doesn't want to wait until he passes, as he's concerned (reasonably or unreasonably) that the will would be contested by step mom, and he doesn't want to die with that concern on his mind.
Posted on 7/21/24 at 7:44 pm to TheOcean
Not getting into family caveats, he feels outside factors can come into play if it goes through will/inheritance and it will be a legal battle. Like the other OP said, if he gifts is below 13MM, can we avoid real estate taxes.
Posted on 7/21/24 at 7:45 pm to Joshjrn
I'm going to call my CPA tomorrow but I want to talk it out loud so I can go in with a particular plan in my mind
This post was edited on 7/21/24 at 7:48 pm
Posted on 7/21/24 at 7:50 pm to glorymanutdtiger
quote:
I'm going to call my CPA tomorrow but I want to talk it out loud so I can go in with a particular plan in my mind
Something that is more adjacently in my wheelhouse, assuming you're in Louisiana, the form of the gift (donation) is very important, and don't let dad tell you otherwise:
quote:
Art. 1541. Form required for donations
A donation inter vivos shall be made by authentic act under the penalty of absolute nullity, unless otherwise expressly permitted by law.
Acts 2008, No. 204, §1, eff. Jan. 1, 2009.
Translation: unless the act of donation meets the form requirements that I'll include in a moment, it's as though the donation never occurred.
quote:
Art. 1833. Authentic act
A. An authentic act is a writing executed before a notary public or other officer authorized to perform that function, in the presence of two witnesses, and signed by each party who executed it, by each witness, and by each notary public before whom it was executed. The typed or hand-printed name of each person shall be placed in a legible form immediately beneath the signature of each person signing the act.
B. To be an authentic act, the writing need not be executed at one time or place, or before the same notary public or in the presence of the same witnesses, provided that each party who executes it does so before a notary public or other officer authorized to perform that function, and in the presence of two witnesses and each party, each witness, and each notary public signs it. The failure to include the typed or hand-printed name of each person signing the act shall not affect the validity or authenticity of the act.
C. If a party is unable or does not know how to sign his name, the notary public must cause him to affix his mark to the writing.
Acts 1984, No. 331, §1, eff. Jan. 1, 1985; Acts 2003, No. 965, §1, eff. Jan. 1, 2005.
This post was edited on 7/21/24 at 7:51 pm
Posted on 7/21/24 at 8:09 pm to Joshjrn
Thank you for your suggestion. It helps a lot
Posted on 7/21/24 at 8:29 pm to glorymanutdtiger
quote:
Thank you for your suggestion. It helps a lot
Please let me know if your CPA says that I'm an idiot; that information would be useful to me in the future
Posted on 7/21/24 at 9:47 pm to glorymanutdtiger
And after spending a few minutes brushing up on it, as a fun reminder:
Considering you said that the entire estate, including the house, should be worth around $400k, assuming you're willing to live in it as your primary residence for at least two years, you can likely exclude the bulk of any capital gains that might otherwise be applicable because you aren't inheriting it if you're single and all of them if you're married.
quote:
If you own and have lived in your home for two of the last five years, you can exclude up to $250,000 ($500,000 for married people filing jointly) of the gain from taxes.
Considering you said that the entire estate, including the house, should be worth around $400k, assuming you're willing to live in it as your primary residence for at least two years, you can likely exclude the bulk of any capital gains that might otherwise be applicable because you aren't inheriting it if you're single and all of them if you're married.
Posted on 7/22/24 at 5:14 am to glorymanutdtiger
Ask your CPA about placing the property in a Trust … one where you would be designated the Trustee
Posted on 7/22/24 at 6:04 am to Joshjrn
quote:
The issue is that dad doesn't want to wait until he passes, as he's concerned (reasonably or unreasonably) that the will would be contested by step mom, and he doesn't want to die with that concern on his mind.
Well that's easy. Toss it into an irrevocable trust where he is trustee and it stays a grantor trust so OP still gets full step up.
Or toss it into an LLC with Dad as 99% member and him as 1%. He'll be the manager and controls the LLC.
Posted on 7/22/24 at 7:24 am to glorymanutdtiger
Be aware of the 5 year Medicaid look back if there's any possibility he'll need it.
"A Medicaid applicant is penalized if assets (money, homes, cars, artwork, etc.) were gifted, transferred, or sold for less than the fair market value."
Payingforseniorcare.com
"A Medicaid applicant is penalized if assets (money, homes, cars, artwork, etc.) were gifted, transferred, or sold for less than the fair market value."
Payingforseniorcare.com
Posted on 7/22/24 at 1:17 pm to glorymanutdtiger
After my mom passed away, my sister and I put our names on the house with my dad via a quit claim deed.
As far as I understand things that will avoid the house going through probate. We put our names on other things as well.
As far as I understand things that will avoid the house going through probate. We put our names on other things as well.
Posted on 7/22/24 at 1:33 pm to glorymanutdtiger
Louisiana? Sell/donate and reserve a usufruct (or a life estate in other states).
Is the house his separate property or does the step-mom own half as community property? If she owns a portion of the house, then that will open up a different set of problems.
Is the house his separate property or does the step-mom own half as community property? If she owns a portion of the house, then that will open up a different set of problems.
Posted on 7/22/24 at 2:39 pm to TheOcean
quote:
Well that's easy. Toss it into an irrevocable trust where he is trustee and it stays a grantor trust so OP still gets full step up.
Or toss it into an LLC with Dad as 99% member and him as 1%. He'll be the manager and controls the LLC.
The LLC was my first thought as that is what we have set up with my mother's property (but only once she passes, not before). From my experience with this, you don't need to be an owner in the LLC to donate to it. He should go over it with his CPA, if I'm right on this then the dad just donates the property to the LLC.
If the two parties have a great relationship then about the only things which may change would be who pays property taxes and/or insurance.
Posted on 7/22/24 at 5:09 pm to glorymanutdtiger
You could be creating a Medicare problem and you are getting ready to give away your stepped up basis. Neither of those things may matter in your situation but I would definitely think those through.
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