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Chad Oberg
Chad Oberg, Certified Public Accountant (CPA)
Category: Tax
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Experience:  10 + years of accounting and tax experience, financial statements and business planning
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Mother wants to keep home in family, but wants to provide inheritance

Customer Question

Mother wants to keep home in family, but wants to provide inheritance to her two daughters with out aurgument over the home. Mother would remain in the home until her passing, but wants her grandson to purchase the home. The grandson has a home now with tax lien of $60,000. His option would be to sell his home, clearing the lien, then get a loan to buy his grandmother's home and finish paying the lien cost to the bank. Fair market value would then be split with the 2 daughters. Or can she give home as a gift to her grandson with the deed stating her placement in the home until passing at which point the granson would then purchase home for fair market value and continue with the exchange of inheritance?

What is the best way to approach this issue?
Submitted: 4 years ago.
Category: Tax
Expert:  Chad Oberg replied 4 years ago.

JACUSTOMER-hk77tue,

 

The best way is to allow the property to pass to the next individual through inheritance. The reason is because the person receiving the inheritance will receive a step-up in basis at the date of death. This means that the fair market value on the date of death will become the recipients new costs. If the property is given as a gift, the basis (cost) of the donor will transfer and possibly cause a significant taxable event. For example, let's say the property was bought in 1945 for $40,000 and it was sold by the recipient in 2010 for $500,000. The gain would be $460,000 in which tax would have to be paid. If the property is inherit, the and the property's fair market value is $500,000 at date of death and it is sold by the recipient for $500,000, the gain is zero.

 

You might consider converting the property as a rental between the recipient and the Mother.

 

See the following IRS publication 950 for more information on this matter:

 

http://www.irs.gov/pub/irs-pdf/p950.pdf

 

If have any further questions or comments, please do not hesitate to contact me.

 

Regards,

 

CEO, CPA

 

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10 + years of accounting and tax experience, financial statements and business planning