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if a parent wanted to give a child a piece of property worth $115.000 how should they do that? should it be sold from parent to child for an amount of $1.00-$10.00 or should the property be given as a gift from parent to child. If it is given as a gift who is responsible for the a gift tax? If there is a gift tax where the IRS must be paid how much would that amount be based on the amount of $115,000>
Optional Information: State/Country relating to question: California Already Tried: tax assessors office,cpa
Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.
There is no Gift Tax for 2012 until your lifetime gifts exceed $5,120,000.
You can gift the property to your son/daughter, but you will need to file a gift tax return on Form 709, due at the same time your tax return is due for the year of the gift.
However, there will be no gift tax due.
Your child's Income Tax basis for the property will be the same as your tax basis.
The lifetime limit is scheduled to revert to $1,000,000. for 2013 unless Congress acts.
You will be able to use the annual gift tax exclusion amount of $13,000. and then the excess will go against your lifetime gift limit of $5,120,000. If you are married, your wife can join in your gift and you can use her $13,000. exclusion against the gift also & therefore only the excess over $26,000. would go against the $5,120,000. lifetime limit.
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Questions?
Thank you for answering this for me. You have made something that seems very complicated very clear. The information that I received from a CPA was to sell the property to my child for $1.00. I am assuming that from your answer that this is the incorrect way of a parent giving a property to a child?
It really doesn't matter. The effect would be basically the same. You would still have a gift for the difference between the $1. & the fair market value of the gift. That advice wasn't wrong or incorrect, perhaps it wasn't adequately explained to you.
Thank you for your answer.You have made something that seems complicated very clear. I was told by a CPA that the parent should sell the property to the child for $1.00. I am assuming that this is incorrect?
One important point is that I presume that your son/daughter wants to do something with the property now?
No. I just want to transfer it over to them. It has been in my plans for a couple of years now.
The reason I ask is that as a gift your son/daughter will have the same income tax cost (basis) as you do, whereas if the property was inherited after you die, their tax basis could be the fair market value at your date of death.
Please explain further I do not understand
What it means is that if the child sells the property that they receive as a gift, their capital gain would be the same as yours, ie. the same as if you sold the property for its fair market value (to someone other than your child for example); if they inherit the property from your estate, their tax cost would likely be the fair market value at your date of death, thus eliminating any capital gain on the difference between what you paid for the property and what the property is worth at your date of death.
Is that clear now?
.Yes very clear and I cannot say thank you enough
OK, great.
Have a wonderful day!!
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Thanks
U2
Experience: Extensive Experience with Tax, Financial & Estate Issues