How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask William Ellis, CPA Your Own Question

William Ellis, CPA
William Ellis, CPA, CPA
Category: Tax
Satisfied Customers: 296
Experience:  Over 15 years of experience in public accounting
Type Your Tax Question Here...
William Ellis, CPA is online now
A new question is answered every 9 seconds

What is the best way to hold mortgaged real estate to save

Resolved Question:

What is the best way to hold mortgaged real estate to save on capital gains tax in the future? I own a rental that is producing income and there is a mortgage on it. As of now there is close to zero equity in it. However, I plan to keep this rental for long time, and maybe pass it to my children. When the rental appreciates, I want my children to pay minimum in inheritance taxes, and should they sell it, the minimum capital gains tax. What would be the optimal way to approach this? Trust, FLP, offshore entity? The main point is that since now it has close to zero equity, I can easily gift, transfer, etc without gift tax.
Submitted: 2 years ago.
Category: Tax
Expert:  William Ellis, CPA replied 2 years ago.

William Ellis, CPA :

Good morning and thank you for continuing to use Just Answer. You can transfer the property today through gifts, either at one time or over a period of years. As the laws read today, you can transfer the entire property at one time to one person and probably not pay gift tax. One is not required to pay gift tax until they have made over $5 million in taxable gifts over their lifetime.

Customer:

But if they sell it later, they would pay full tax on the gain?

William Ellis, CPA :

If this property is going to several family members and is expected to appreciate, you could look into the FLP. I wouldn't advise this unless the property's value is in the millions. One never knows what the future holds regarding estate tax, so I advise you to enact the strategy soon.

William Ellis, CPA :

They may. But unless the capital gains rates go back to the levels in the late 70s, their capital gain rates should be lower than the estate tax rates, if you are looking to have a taxable estate. I wouldn't be surprised if the taxable estate level is moved back to $1 million over the next five years.

William Ellis, CPA :

But, if the estate is liquid and can pay the tax, the inheritors will receive the property at its fair market value at the time of death.

Customer:

I would rather not risk it with estate tax. I don't like the uncertainty. I would rather transfer property beforehand via the trust. How is a living trust taxed? If I transfer property to it now, and the children are beneficiaries, what happens at the time of death? I understand that the trust property does not become part of estate

William Ellis, CPA :

Unless the rules have changed, gifts made within three years of death are included in the estate. I am not sure about donations to living trusts. I am pretty sure this does not apply to FLPs. Is direct gifting appropriate with this property?

Customer:

Yes, direct gifting is appropriate.

Customer:

but generally, transfers to living trust are considered gifts? (I mean if not within 3 years of death)

William Ellis, CPA :

Let me do a little research and get back to you. Ten to fifteen minutes. Thanks.

William Ellis, CPA :

I think if you create an irrevocable trust, the property should not be counted in your estate. But, this is a very complex area, and I would consult with a tax/estate attorney in your state.

Customer:

Ok, thanks. Let me read up on the trust taxation and maybe speak to an attorney. I do understand that this is a complex matter.

William Ellis, CPA, CPA
Category: Tax
Satisfied Customers: 296
Experience: Over 15 years of experience in public accounting
William Ellis, CPA and other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.