I want to give my house to my children

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)?

Reply to
NadCixelsyd
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True, assuming both you and your wife are both on title when you sell.

You can sell it to them for full market price, on an installment sale. A mortgage isn't strictly necessary. I'd wait for a while before you forgive the entire balance, to make it look less like a pre-arranged and thus bogus transaction.

Reply to
Stuart O. Bronstein

Are you and your wife going to continue living in the house? Why do you want to give the house to your children?

Are you trying to "avoid probate"? Talk to a local lawyer who handles wills and estates. In a lot of states probate is really not so bad - not worth getting into complex financial manipulations or doing something that the IRS might question. If you still want to give the house to your kids, and you plan to continue living in it, ask a lawyer about giving it to them while retaining a life estate. That way they will still get the stepped-up basis.

Or are you trying to dispose of your assets so that you or your wife can qualify for Medicaid? You definitely need to talk to a lawyer if that's what you're trying to do.

The bottom line is: talk to a lawyer.

Bob Sandler

Reply to
Bob Sandler

According to IRS pub 523,

"For a married couple filing jointly, only one spouse has to meet the ownership requirement"

Reply to
NadCixelsyd

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