Transferring parents deed to me, avoiding Nonexempted Taxes

Previous | Next
 rated by 0 users
Latest post 02-09-2008 12:06 PM by rmsk2004. 8 replies.
  • 02-08-2008 5:54 PM

    Question [=?] Transferring parents deed to me, avoiding Nonexempted Taxes

    My parents want to put the deed to their home in my name now. (They are giving my siblings equal amount of cash equivalent to the value of the
    house approx $80,000 to $100,000) Is there a way to get around from bearing the non-exempted expense of taxes?
    I believe my tax basis would be based on the value of the house. Right now my parents are getting old
    age real estate tax exemptions. Example: They are paying approx. $500 year in taxes. I would probably have to pay $2,000 a year. Is there a way to keep my tax basis the same as my parents' tax basis? If they put the house in my name now and I wait a few years to have it recorded do I have to pay back taxes and interest? My parents and I do not know what our options are. The home is in Brazoria County, Clute TX 77531
  • 02-08-2008 6:34 PM In reply to

    re: Transferring parents deed to me, avoiding Nonexempted Taxes

    There's more to it than your having to pay increased property taxes.

    As from the hassle of having to file gift tax returns on all this gifting and claiming part of their lifetime gift tax exemption ($1 million) (and the kids not benefitting from the stepped-up value basis that they'd otherwise enjoy were your parents to wait and just let them inherit at death), there's the issue of your parents possibly being ineligible for Medicaid should the need arise in the next 5 years if they need to, say, go into a nursing home.

    And I trust they have plenty of money socked away for other expenses vs. needing to tap into their home equity.

    "Is there a way to get around from bearing the non-exempted expense of taxes?"

    If you mean capital gains should you sell the place in however many years, no, not really (aside from telling them to leave it to you in their will vs. gifting it to you now).

    "Right now my parents are getting old age real estate tax exemptions."

    If you are talking about property taxes, that may be least of your-their worries. Think about the capital gains tax on the sale should you take ownership now and sell however many years from now.

    "Is there a way to keep my tax basis the same as my parents' tax basis?"

    You'd have to ask a local real estate attorney.

    "If they put the house in my name now and I wait a few years to have it recorded do I have to pay back taxes and interest?"

    Uhm, *someone* had better be paying the property taxes every year regardless of whether you record a transfer of ownership of the property.

    Your parents should be talking with a local estate planning attorney.
  • 02-08-2008 6:47 PM In reply to

    re: Transferring parents deed to me, avoiding Nonexempted Taxes

    Thank you for your comments.
    I'm glad I asked my parents to wait.

    Their thinking is that they want to get everything out of their name now so that in case 5 yrs from now if they need Medicaid.

    Looks like I need to come up with some money to find a lawyer because I know nothing about
    Capital Gains Tax, nor do 1 understand "not benefitting from the stepped-up value basis that they'd otherwise enjoy were your parents to wait and just let them inherit at death"
  • 02-08-2008 7:02 PM In reply to

    re: Transferring parents deed to me, avoiding Nonexempted Taxes

    You don't need a lawyer to find out about capital gains tax. Just hit the IRS web site. If you mean as to your parents' estate planning, if they have enough cash stashed away to be handing each of your siblings $80-100k, they can afford to see an estate planning attorney.

    "Their thinking is that they want to get everything out of their name now so that in case 5 yrs from now if they need Medicaid."

    This isn't a complete sentence; no, I don't know what their thinking is. If 5 years from the date they give it to you they need to qualify for Medicaid, the Medicaid folks would look back at this asset transfer and declare the person needing the care ineligible for quite a long time. Ineligible to the equivalent tune of what their interest in the house was worth upon transfer; at least I don't *think* they'd pick-ascertain value of what it would have been worth by then had they not transferred it to you anyway. :) Wouldn't put it past the government though.

    In that scenario, who would pay for their nursing care for that period of ineligibility?? Would you be willing to sell or mortgage the house to pay for the care? What if only one of them needed to be in a nursing home? Where would the other live if you had to sell the house? Would your siblings have already spent the money they were given 5 years before (now)? Would they be able to chip in?

    If your parents gift the house to you now, your tax basis would be its present value. Let's say that's $100k. If you sold it say 10 years from now and its value was $500k, you'd owe $60k in capital gains tax on the $400k profit (assuming 15% capital gains tax applies and stays the same in 10 years). I figure if you're concerned about the property taxes going from $500 to $2,000 a year, you'd care whether a good chunk of your profit down the road would go to the federal tax man, never mind the state tax man.

    If your parents would just leave the house to you in their will -- assuming they didn't need Medicaid care or some other estate debt didn't mean that it would have to be sold to pay those expenses -- your tax basis in the house would be the value at the time of their death. You could turn around and sell the property right then without being subjected to a capital gains tax (or at least not much of one, given chances are the value wouldn't change much between time of death and time of sale if you didn't wait very long).
  • 02-08-2008 8:04 PM In reply to

    Disagree [)*(] re: Transferring parents deed to me, avoiding Nonexempted Taxes

    “If your parents gift the house to you now, your tax basis would be its present value. Let's say that's $100k. If you sold it say 10 years from now and its value was $500k, you'd owe $60k in capital gains tax on the $400k profit (assuming 15% capital gains tax applies and stays the same in 10 years). ”

    No, that’s not correct. If they give him the house today, his basis for federal income tax will not be the present value of the home. It will be his parents’ basis in the home. Thus, as tax lawyers describe it, their basis “carries over” to him. His parents’ basis in the home, assuming they purchased it rather than inheriting it or receiving it by gift, is the price they paid for it adjusted by any improvements they made to it and any depreciation they took (or could have taken) on the property. For example, suppose 20 years ago they bought it for $25,000 and put another $10,000 in improvements in it over the years. Their basis in the house would now be $35,000. That is the basis that he would get if they gave him a gift of the house today, in this example. Thus, if he immediately sold the house for $100,000, he’d have a capital gain of $65,000 on which he would pay tax at a maximum rate of 15%.

    However, if they gave the house to him in their will, and they died today, his basis in the house would become the fair market value of the house on the date of death. That's known as the "step-up" in basis to fair market value. In the example above, that would mean his basis would be $100,000 instead of $35,000. So, if he then immediately sold it for $100,000, he would have zero gain and pay no income tax on the sale of the house.
  • 02-09-2008 8:47 AM In reply to

    Question [=?] re: Transferring parents deed to me, avoiding Nonexempted Taxes

    o.k. I better understand "step-up" in basis to fair market value and that ugly capital gains tax. Thank you all so very much.

    As my parents are both alive and together, the house is in my father's name only (they took her name off of it five years ago).

    My mother is in poor health and wants to go into a convalescent home sometime this year, if she can qualify for Medicaid . (I work out of state & can't retire for 3 more years.)

    Although my father is in good health it is getting much more difficult to care for her since she is unable to walk and get around.

    My father's fear is that if he should have to go into a retirement facility (nursing home) his house will be taken to pay for his care. His words are - he has worked hard all his life and wants to leave the house to his child. Not loose it all to the "government".

    Can his house be taken to go towards the expense for paying the nursing home instead of qualifying for Medicaid?

    I have no idea what I would do with the house when my parents do pass away. The thought is so overwhelming. My original thought was to then give the deed to my (parents) house to my only child.

    If my parents gave me the house, while they are alive, and then I gave it to him and he sales it immediately, how would all this affect my son?

    Right now it appears that my parents should "will" me the house. But my Dad does not "want the government to take everything he has worked all his life for"

  • 02-09-2008 9:35 AM In reply to

    Feedback [*=*] re: Transferring parents deed to me, avoiding Nonexempted Taxes

    When your father says he doesn’t want his house (and presumably other assets) that he worked so hard for to “go to the government”, that has the ring of the government getting the money and not benefitting him. IMO, he’s not thinking about this correctly. Before he thinks about ensuring his kids get his assets, he should ensure that they are available to him and his wife for their needs. If the house needs to be sold and the funds used to pay for HIS care, that’s what it is there for, right? In paying for his needs, it is benefitting him, not the government. By using his own funds, he can better control where he goes and his quality of life. So, yes, the nursing home could look to his assets to pay whatever bills he would owe them for his care, but in that event at least the money is benefitting him. The nursing home is not there to provide those services for free.

    Now, sure, there are folks that want to give their assets to their kids fearing they’ll need nursing home care and who want Medicaid to pay for it. While that can be done if the transfers are done more than 5 years before the need to apply for Medicaid arises, by doing that the parents are effectively impoverishing themselves to enrich their kids and they lose the ability to control their quality of life. Not to mention that this kind of planning is a bit controversial. There is a sentiment among some that its wrong to allow folks to pass their assets to their kids and then have taxpayers foot the bill for their care. That is, of course, the thought behind the five year rule for Medicaid long term care benefits. I realize that it’s nice to pass assets to your kids, but more folks need to think about themselves first. It is not a waste of everything you’ve worked for if what you’ve earned is going to help you. Some folks seem to have this idea that they are somehow a failure if they can't give a lot of their assets to their kids. But that's not the measure of success and most people are not going to judge their success by how much they leave to their kids.

    On the other hand, unless your parents have a large estate (over $1 million) such that federal estate tax planning is a concern, giving you the home early may well result in the government getting more of the house than it would if he gave you the house in his will. My explanation of the basis rule and how the gain would work in the last post illustrates that. So, if he’s concerned about the government getting it (and not providing any benefit to him or to you), this is where that really comes into play.

    Your father really should talk to an estate planning attorney who is familiar with the applicable federal estate and income tax rules, as well as the Medicaid rules, to help him plan out the best way to meet his objectives.
  • 02-09-2008 12:06 PM In reply to

    re: Transferring parents deed to me, avoiding Nonexempted Taxes

    Thank you so much for providing me an example to present to him of another way to look at the situation. He has worked extremely hard all his life to ensure that both parents are taken care of in their later years.
  • 02-11-2008 5:13 PM In reply to

    I'm sorry, I didn't mean to use the word 'basis' ...

    and I didn't explain CGT very well in general this time. Friday was a long day.

    I'm just going to refer the poster to the IRS site as to capital gains as to homes and gift bases in general.

    That said, if father gifted him the house right now and he turned around and sold it vs. waiting, would this trigger a short-term capital gains tax rate or does he get to take advantage of the fact that they had held it as a long-term investment? In any case, poster would want to talk with a tax professional.

    "My mother is in poor health and wants to go into a convalescent home sometime this year, if she can qualify for Medicaid ."

    Depending on when she "took her name off" the house, she may or may not be deemed eligible. I'm not up on transfers to spouses (you don't say where her share went).

    "My father's fear is that if he should have to go into a retirement facility (nursing home) his house will be taken to pay for his care."

    That's one way to look at it, but so long as there is some chance that he would reoccupy the house, it won't be "taken".

    "If my parents gave me the house, while they are alive, and then I gave it to him and he sales it immediately, how would all this affect my son?"

    Talk with a tax professional but, again, it's not at all clear that your father's got the right state of mind about how this should work.

    "But my Dad does not "want the government to take everything he has worked all his life for"

    Again, that's one way of looking at it. Another is to think about what Medicaid coverage may get him vs. using his assets.
Page 1 of 1 (9 items) | RSS

My Community

Community Membership New Users: Search Community