Limits on Real Estate Gifts
Understand the tax implications of real estate gifts. Real estate property transferred without any form of compensation in return will be valued at the original purchase price (cost basis/tax basis) and when sold, capital gains that will be paid by the giftee are calculated from that number versus the fair market value/sale price. It is extremely important to know the limits on the federal estate tax and gift tax exclusions under the current federal tax guidelines for both lifetime exemptions and annual exclusions when planning this generous gift of Los Angeles real estate to your loved ones this holiday season.
Figure that with an outright gift/transfer of ownership, be aware that should death occur within three years of any transfer of property, the property would be subject to estate taxes. Additionally, gift planning of this type could affect your medicare eligibility, if it is within five years of your application. Be certain you take the time to plan ahead. Keep asking great questions of realtors who know the real estate market, accountants (to understand estate tax exemptions of real property, to provide valuable tax benefits and to understand gift giving regulations), and estate planning attorneys (legal advisors are critical), until you fully understand all of the implications of any decision you make in gifting property. This affects Federal income taxes, both your income tax deductions and the capital gains taxes of your beneficiaries.
Consider Joint Ownership
Another choice allowing you to gift Los Angeles real estate to your loved ones this holiday season is through joint ownership. By retitling property that was in your name only and adding your recipient, this creates a joint tenancy with rights of survivorship, meaning you have made a gift of a portion of the real property. Word of caution, this is a very complicated transaction however, by careful arrangements in advance probate can be avoided, saving time and changing the cost basis.
Additionally, you’ll be saving your heirs money through the tax benefit. However, if there are multiple heirs, this can become an extremely complicated process. This may also lead to uncomfortable situations, with all parties having to come to an agreement to sell any or all of the shares in the property. Likewise, the property becomes subject to any creditors of any of the parties with ownership. Should you still reside in the property, you may wish to consider alternative options for gifting the property, in order to avoid any unpleasantries among family members, since it is your personal property.
Start a Real Estate Business
Owning real estate as a Limited Liability Company (LLC) is another great way to gift Los Angeles real estate to your loved ones this holiday season. This protects your assets, allowing them to be passed on in their entirety after your death. LLC allows for a step-up basis at the time of death, meaning the beneficiary will receive no capital gains tax upon the sale of the property.
In this most preferred method of ownership, you can take control of what happens to your estate. You can help your giftee avoid taxes by preplanning carefully. When setting out to pass down real estate through a real estate business, you must be absolutely certain to create a business succession plan or an agreement between any partners, otherwise, the property will be subject to probate for distribution. Understanding not only future appreciation but property taxes, maintenance costs, maintenance fees, changing tax rates, tax issues, is critical.
Utilize a Charitable Remainder Trust
Leaving the property as an inheritance is another method that will allow you to gift Los Angeles real estate to your loved ones this holiday season and has great tax advantages. By creating a simple trust and titling the property in the name of the trust, you can avoid probate, by naming your recipients as trust beneficiaries. One advantage in conveying property through a revocable trust is that the recipient will not incur the capital gains taxes, as the property is valued at the time of inheritance, rather than the value at the time of the original purchase.
Additionally, it provides a period of protection during which the property is overseen by a trustee, responsible for the protection or distribution of the assets as outlined in the will. There are also generation-skipping trusts, should you wish to will the property directly to a grandchild, when properly executed this helps to avoid taxation upon the death of your children.
You can also ask your accountant about charitable deductions, retained life estate, and charitable gift annuity for other gift vehicles.
- How to give your home to your adult child tax-free – Oct 26, 2019 … Second, you’ve whittled down your unified federal gift and estate tax … Get the tools you need to succeed in the market, with real-time market … (marketwatch.com)
- Selling a Gift of Real Estate Can Cost You Tax Dollars – If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift. Related Topics. Estate and Gift … (irs.gov)
- How to Gift Real Estate – Jan 7, 2016 … Gift Real Estate During Lifetime. If you move out of the house and give it to children today, you are using up a unified federal gift and estate tax … (jiahkimlaw.com)
As a rule of thumb, these are a few of the great ways to gift Los Angeles real estate to your loved ones this holiday season. At Jennifer Buys Houses we are here to help you understand the advantages and disadvantages of each option. We stop and take the time to listen, gaining a thorough understanding of your unique circumstances and your intent with a real estate gift.
Our goal is to help you fulfill your wishes, especially as it relates to avoiding capital gains tax and selling at fair market value. In addition to your personal residence, we can also help with commercial property, undeveloped land, or rental property. Jennifer Buys Houses is here to assist you with any questions you may have on giving such a perfect gift. We are a 5-Star Yelp rated company, but we are not real estate agents. Send us a message or call (424) 242-9304 today.