Correct me if I'm wrong.
My home, purchased 1987, now mortgage free, has a cost basis of $200k and has been the primary residence for my wife and I for 32 years. It's now worth about $700k. If I sell it, I get to keep the entire $700k free of federal income tax. If I give it to my kids, their basis is just $200k.
If I give my kids $700k (and file a gift tax return with zero tax) in cash and they use it to buy my house, they get the step up in basis (don't they) and I pay no tax. However, I don't have $700k to give them. Is there a way to structure this such that I pay no tax on the "profit" and they get the step up in basis.
I could take out a mortgage, but that's a costly, time consuming pain in the ass.
Can they sign a $700k mortgage to buy the house and next month I forgive the debt as a gift (and file a gift tax return)?