Gift Tax Question

The basis for your kids would be your basis - $30,000. The value of the gift is the current value of the property. A professional appraisal is best, though a written opinion from a local real estate broker who works with raw land may suffice. Oh, and don't forget to file a gift tax return. The first $48,000 will be tax free, but you may need to file a return even if it's less than that depending on the marital property laws of the state you live in. Stu

The value is the current value as determined by a qualified appraiser. Their basis would be the lesser of $30K, assuming the land is worth more than $30K. Ira Smilovitz

Their basis in the land is your adjusted basis plus any gift tax paid on the appreciation of the property up until the time of the gift. Your adjusted basis is the original cost plus any costs for improvements, additions, litigation expenses, etc. minus any costs for any tax benefits such as return of capital, tax credits, etc. Rudy

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This sounds similar to the gift tax return I did just today.

you value the property at fair market value (FMV). However their basis will be your basis, meaning what you paid for it back then. ChEAr$, Harlan Lunsford, EA n LA

There are two issues: Basis - doesn't change, the land cost $30K and the only change to basis is upon sale to a new owner or death of the original owner. Gift Tax - you are permitted to gift $48K this year (two of you, times two recipients is 4 X $12K tax free gift amount) Above this, you either need to pay gift tax or tap your lifetime unified credit. You can arrange the gift in installments to give 1/2 share this year, 1/2 next year, if the current value is under $96K. Don't know how long "some years" is. You need to have it appraised. JOE

Value of the gift is FMV of the property. Their basis in the property is your current basis + any gift tax, if any, that you may need to pay on the appreciated value of the propery.

To value the property for gift tax purposes, you would need to get a valuation appraisal. Congress recently enacted provisions requiring that a valuation be a "qualified appraisal" received from a "qualified appraiser" that, while clearly applicable to charitable donation valuations for income tax purposes, may also apply for gift tax valuation purposes as well. Until and unless the IRS issues rules that except gift tax valuations from the new provision, you would be best advised to obtain a "qualified appraisal" from a "qualified appraiser" in valuing the property in question. With respect to the basis that your son and daughter-in-law would take, it would, in general, be the same as your current basis in the property (i.e., generally, what you paid for it, plus any other expenses you paid that you had to capitalize into your basis).

The consensus seems to be that the value of the gift, for gift tax purposes, is the FMV of the property at the time of the gift(s). Given the appreciation, we'd have to gift it to them over a few years, but that should not be an issue. Thanks to all.

--ron

No need to do that. If you make the gift, you'll need to file a gift tax return, but chances are high that you'll pay no tax. ChEAr$, Harlan Lunsford, EA n LA

No one seemed to mention........ If they need it now that's one thing. They are going to bulid/farm/ranch it etc. If you're trying to plan for the future and move assets to "settle" your estate, letting them inherit the land "steps up" the basis to the value at that point in time. That is for example, if the land is worth $1M- -no one pays gains tax on the increase. Might want to gift them something else, BUT you also have to consider the estate tax potential overall.

I thought that if we did that, we would reduce the lifetime exclusion; whereas if we split it over a few years, we could avoid that issue.

--ron

No, the reason we would consider gifting them the property would be if they were going to build a home and live there. Otherwise, it's up for sale.

--ron

No tax currently. But if they have an estate that's large enough, it could increase the amount of estate tax they will eventually have to pay. The problem with gifting over time is that you either need to get an appraisal each year when you make the gift, or be sure you give an amount low enough that there will be no question that it's less than the annual exclusion amount. In this case there are two donors and two donees, which means (at the current level for the exclusion) they can give up to $48,000 in value to them per year. Stu

Depending on the size of their taxable estates, it may be better to get it out of their estates now even if the kids don't get a stepped up basis. For the same amount of money the estate tax is going to be higher than income tax - particularly long term capital gain. That said, for the large majority of estates, because of their size, the stepped-up basis is the better choice. Stu

Yeah, but if you don't reduce the lifetime exemption your heirs might not need Harlan's services to do an estate tax return. ;-) Stu

You're talking here about one property. How do you give it over several years? Have it surveyed and deed portions of it each year? Cost prohibitive. ChEAr$, Harlan Lunsford, EA n LA

Not necessarily. If they have an approximate cost of the property and be sure the amount tranferred is well under the annual exclusion amount, I'd think they'd be safe. E.g., property worth $100,000 this year (based on an informal opinion by a real estate broker) and with an exemption amount of $48,000, give a 25% interest. Stu

I've not had any problems with joint ownership of other properties. I've sold an unrelated person a 50% ownership in a property I owned, in exchange for cash. Is there some reason that gifting cannot follow a similar process?

--ron

The potential problem with gifting is that the IRS could come back and second-guess you in years to come. If you don't file a gift tax return the statute of limitations never runs on the gift. But if you're careful you shouldn't have a problem.

Stu