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Ask Asad Rahman Your Own Question
Asad Rahman
Asad Rahman, Lawyer
Category: Real Estate Law
Satisfied Customers: 2174
Experience:  Practicing Attorney with 10 years experience
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Carrying on the conversation from a month or so ago - my

Customer Question

Hi Richard, carrying on the conversation from a month or so ago - my parents own a house (and land) that they do not live in, and own free and clear (original cost and upgrades are probably $100k). They want to give it to me and my two siblings, and we would sell the house immediately. Just to clarify, is this the right way to do this to incur the least amount of tax liability? Would it be better for the kids to incorporate?
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  Asad Rahman replied 1 year ago.

I am not Richard, but am happy to help. Yes, you could form a LLC and then sell the property, but you would likely need to buy it from your parent for a reasonable price. Then when you sell it, the profit would be taxed as income at the individual level. You could also receive it as a gift but then you have the capital gains tax and inheritance tax. A financial planner/accountant might have other possible solutions to minimize your tax liability.

Customer: replied 1 year ago.
What is the option that would allow our parents to transfer the property where they wouldn't pay taxes, and that would reduce the tax burden on the children?
Expert:  Asad Rahman replied 1 year ago.

If they sell it to you guys then there is tax there, if they gift it to you, then there is no tax on them but there is tax liability on the children. There is really no way to eliminate both of your tax liability. The federal government will get the money in some form or fashion.

Customer: replied 1 year ago.
Capital gains, I get that. What would the amount of inheritance tax be, if any?
Expert:  Asad Rahman replied 1 year ago.

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Estate Tax

The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death (Refer to Form 706 (PDF)). The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.

Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit.

Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 - 2005; $2,000,000 in 2006 - 2008; $3,500,000 for decedents dying in 2009; and $5,000,000 or more for decedent's dying in 2010 and 2011 (note: there are special rules for decedents dying in 2010); $5,120,000 in 2012, $5,250,000 in 2013, $5,340,000 in 2014, $5,430,000 in 2015, and $5,450,000 in 2016.

Beginning January 1, 2011, estates of decedents survived by a spouse may elect to pass any of the decedent’s unused exemption to the surviving spouse. This election is made on a timely filed estate tax return for the decedent with a surviving spouse. Note that simplified valuation provisions apply for those estates without a filing requirement absent the portability election.

Expert:  Asad Rahman replied 1 year ago.

One point to note is that the inheritance tax applies if they leave it to you in a will. There may be a gift tax if the property is given to you as a gift while your parents are alive.

Expert:  Asad Rahman replied 1 year ago.

Good luck to you guys.

Expert:  Asad Rahman replied 1 year ago.

Do you need further assistance?