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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Can my Dad sell me his house or give me the house and not pay

Resolved Question:

Can my Dad sell me his house or give me the house and not pay any tax
he is 87 years old
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.
Hello moore,

There are different rules regarding the sale of a home versus gifting a home, so let's look at each of these. The same rules apply whether he will be selling or gifting the home to you or to anyone else that is not related.

If your father were to sell his home, he would be subject to long term capital gains tax on any gain he had from the sale. However, if this was his primary residence, then there is an exclusion he may claim. In order for this to be considered his primary residence, he must have owned the home for at least 2 years and he must have lived in the home for at least 2 of the last 5 years. If he satisifes those rules, then when he sells the home he may exclude $250,000 (or $500,000 if he is married filing a joint return) from any gain he has before any excess gain is subject to tax.

His gain is figured by taking the sale price less his basis. His basis in the home is whatever he originally paid for the home plus the cost of any improvements he made while he owned it. So as an example, let's say your father originally paid $50,000 for this home and then made another $10,000 in improvements. That gives him a basis of $60,000. If he now sells the home for $200,000 he has a gain of $140,000. However, if this is his primary residence then he can exclude $250,000 from the gain, which would then leave him with no taxable gain at all.

Using the same example as above, let's say he sells the home for $360,000 and his basis is still $60,000. He now has a gain of $300,000. He would claim his allowed exclusion of $250,000 and only be liable for tax on the remaining $50,000 profit. This would be taxed at the long term capital gains tax rate which is currently capped at 15%.

If instead of selling the home he gives this to you as a gift, then there is likely no tax due, but it would need to be reported. Under current law, each taxpayer is allowed to give gifts in their lifetime of up to $1 million in value before any gift tax is due. However, if someone gives a gift that is worth more than $13,000 in any one year, then the gift must be reported on Form 709. No tax would be due unless the taxpayer had already used up his $1 million lifetime exemption, but the form would need to be filed.

The only drawback to him gifting you this home is that when you receive property as a gift, you would retain the same basis as your father's basis. So again, using the example above, if your father's basis was $60,000, that same basis passes on to you when you receive the home as a gift. So when you eventually sell the home that would be the basis you need to use in determining if you had any taxable gain from the sale.

If instead of gifting you this home, your father would instead leave it to you in his will, then when you receive property through an inheritance, you automatically receive a stepped up basis. What that means is that your new basis would be the fair market value of the home on the day you inherit it. By having this increased basis, when you eventually sell the property you will have a much smaller gain to worry about paying any tax on.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you moore.
Customer: replied 5 years ago.

If I don't sell the house and he needs to have assistant living can they make him sell the house to pay for the assistant living? I'm trying to see which way I should go.

I don't want to lose my inheritance to assistant living even though he has will the proprty

to me and my brother

Expert:  Merlo replied 5 years ago.
Hello again moore,

They could not actually make him sell the house, but if he owned the home then they would certainly take the value of that asset in to consideration when determining his eligibility for any benefits.

The problem is that even if he now transfers this home to your name, they have a look back period of 5 years. So if they see that he gave away a home or any other asset in the last 5 years, they would still include that in his assets when determining the benefits he would be eligible for.

Unfortunately the benefits for assisted living is not really a tax related question. That is probably something that would best be addressed by an attorney who is more familiar with those laws. But I do know that there is a 5 year look back period on assets. Now it is possible that the look back period would not apply if he sells the home rather than gives it away, but again, since that is not really a tax related question, I really think you would be best to seek the opinion of an attorney who knows the laws realted to this issue.

Just Answer does also have a legal forum where you could post this question if you need guidance.

If I can help you with any other tax related issues, please let me know.

Thank you moore.
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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