Will I Owe Gift Tax if I Deed My Kid My House Now?
This question comes up quite often.
Can I deed my house to my daughter or son while I am still alive? Will I have to pay any taxes?
Yes to the first, but maybe to the second question. It is very dependent on your facts.
Taxes that come into play will be gift taxes. The donor or the person who is giving the gift may owe gift taxes.
You are entitled to a total non-exempt lifetime gift exemption of a $1 million before you pass away. You can give away up to a $1million in assets without owing any gift tax. However, you still have to file a gift tax return with the IRS when you deed the house to your children or anyone else as a gift.
Your lifetime gift giving will be subtracted from your federal estate tax exemption, which is $2 million in 2006.
So, if your house is worth close to a million in today's dollars, you may want to consult an attorney or accountant for an analysis and more details on how this type of transaction may affect your tax liability and estate tax exemption.
Also, personally, gifting your house now to your kids is never as good as inheriting the house when you pass away. They lose the stepped up basis on the home's value and you lose your home.
Cross References:
See my post on January 22 for an explanation of stepped up basis.
"Also, personally, gifting your house now to your kids is never as good as inheriting the house when you pass away."
That's not necessarily true, due to the tax inclusive and exclusive nature of the gift and estate taxes, and the fact that the long term capital gain rate is 15% and the estate tax is at 46%.
Posted by: das | April 03, 2006 at 07:42 PM
That may be true if the estate is subject to estate taxes.
Fortunately, only about 2% of all estates are subject to estate taxes so this being "not necessarily true" does not hold merit for 98% of the estates. See irs.gov website on Estate and Gift Taxes for statistics.
Posted by: Jennifer Sawday | April 04, 2006 at 08:25 PM
"Also, personally, gifting your house now to your kids is never as good as inheriting the house when you pass away."
With the step up, wouldn't your kids pay more in annual property taxes? If this is the case wouldn't the decision be a matter of what your kids plan on doing with the property: live in it v sell it.
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