You might consider it the perfect gift: You are ready to move out of your home and downsize into a smaller condo or move into an assisted-living facility. Instead of selling the house, you’d like to gift it to one or more of your children.
This is a generous act, but it also comes with some serious consequences. In most cases, if you want to leave your home to a relative, it’s best to do so as an inheritance after you die rather than as a gift.
Before you gift your residence, consider these key factors.
The big tax implications
Gifting your children your house might eventually leave them with a big tax bill. The reason is something known as the home’s tax, or cost, basis.
How does tax basis work?
When you gift a home to a relative, the original cost of the home is now also considered the cost basis for the person to whom you are giving the residence, even though this person isn’t paying anything for it. For instance, if you give your child a home on which you spent $170,000 10 years ago, that property’s tax basis remains $170,000, even if an appraiser would determine that the residence is worth $270,000 in today’s housing market.
If you give a home to your children as part of your inheritance after you die, though, the tax basis is whatever the home is worth in the current market. Even if you only spent $170,000 on your home, the tax basis of the property would be considered $270,000 if that is what it is worth today.
This subtle difference can have a big impact on the person to whom you’ve gifted your home.
What about the capital gains taxes?
If your children decide to sell the home you gifted them right away, they could face a big tax hit. If the home’s tax basis is $170,000 and your children sell it for $270,000, they’ll have…
I have a crazy passion for #music, #celebrity #news & #fashion! I'm always out and about on Twitter.
Latest posts by Sasha Harriet (see all)
- Adding a Riving Knife for Table Saw Safety - June 23, 2017
- Who will train the next generation of data scientists? - June 23, 2017
- How to Remember Everything Without Being Hard Working - June 23, 2017
More from Around the Web