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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13339
Experience:  15years with H & R Block. Divisional leader, Instructor
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Hello again: Id like to somewhat understand the following

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Hello again: I'd like to somewhat understand the following situation.

Mother (88) yrs old quit claimed for $10 land to her daughter about 1 year ago. Daughter is just hold the land; however she did just recently lease for Oil/Gas for $20,000. Land is only worth maybe $50,000 so it's surprising got $20K to lease.

Basically, in a situation where land is given to you what are the impacts tax wise? Does mother's basis in property transfer to daughter? Would it make sense for daughter to quit claim back to mother and have mother leave to daughter in will so she can get a step up in basis of FMV? The other thing is daughter isn't getting land for free really...daugher is RN and pouring countless hours into caring for her mother....if this fact means anything.

Can you briefly talking about a situation like this? I just want to understand all pros/cons and what best case planning would be? Mother was told if she goes into nursing home they'll take everything she gots...so that was a factor.

Robin D :

Hello and thank you for using Just Answer,
As the mother gifted the property, the basis transfers to the daughter. Were the daughter to gift the property to the mother the same would apply. There is a step up in basis when someone inherits property. The care given by the daughter would not be deemed payment for the property because the transfer was made as a gift.
The basis in the property is not the $10 it is the cost that the mother had in the property.

Customer: Well the deed said "and other consideration" as payment, seems like that could mean anything. If transfer was made as payment for services then daughter would need to recognize income then for FMV of services right? If gift then basis is just transferred and when daughter sells she'll have tax bill since mother basis was small $5,000 and FMV now like $50,000. Tiny for property though. Long story short is only way to avoid either recognized income or small basis compared to FMV is to transfer at death?
Customer: Other concern was to get assets out her name in case mothers needs nursing home care in future. It's becoming full time job right now and some nursing home said they do 5 yr look back to recapture any transferred assets.
Robin D :

Well the deed said "and other consideration" as payment That is a standard used in those types of transfers. For tax purposes it does not have any bearing and when property is transferred far below it's fair market value, for taxes, it is a gift.
That means the receiver has the same basis as the giver. The giver is required to report if the gift is more then the yearly limit (2012 that was $13,000).

Robin D :

The daughter has the same basis that the mother had when she made the gift. Transfers at death do receive a step up in basis.

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