Transferring ownership of house to daughter

[tsuewalker]

Client has a house that her daghter has been living in for a long time. Client wants to just give her daughter the house.
Can anybody tell me how this will affect the taxpayer and her daughter. Thanks for your help in advance!

tsw

[Lion]

A couple of quick thoughts. Your client will file a gift tax return. His daughter gets your client's basis in house. Your client will have some other paperwork at his state and local levels depending upon his state laws. Is there a mortgage? That might me the largest problem. Your client will lose mortgage interest and property tax deductions. His daughter gains those.

[tsuewalker]

Lion

No mortgage!

[Lion]

That's good, because the bank would be the biggest obstacle. And, your client hasn't had the benefit of mortgage interest deductions. How old is she? Any benefit to the daughter waiting to inherit the house at FMV? What's her basis now vs. current FMV? Does the daughter want to own the house? Why does the mother not want to own the house? Are there other ways to accomplish your client's objectives with her life, estate planning, etc.? Does she own her own residence or might she want to move back into her other house when she retires or want to rent it out to make some extra money during retirement? Is your client married?

[taxea]

Not a good deal for the daughter because of the transfer of mom's basis with no step-up. It would be better if she took the necessary steps to insure that the daughter would inherit the house upon her death. The other option would be to gift the daughter the maximum value allowed each year until her death. If daughter is married she can double the gift value by giving daughter's husband a like %. This would still allow for the daughter to inherit the house and the husband would, at the time of mom's death, own a smaller portion of the house. The daughter would get the stepped-up basis minus the amounts she has been gifted over the years.

[ATSMAN]

Unless you guys are also lawyers, I would not give any advice regarding the transfer and ownership of an asset like a house.

9 out of 10 times when I get these questions, it is in contemplation or preparation of the owner going to a nursing home and they don't want the state to grab the house to pay for it. Because I am not an attorney, I refer them to an elder care attorney with the full understanding that I will limit myself to the taxation aspects only.

[TAXNJ]

Agree but

Unless you guys are also lawyers, I would not give any advice regarding the transfer and ownership of an asset like a house.

9 out of 10 times when I get these questions, it is in contemplation or preparation of the owner going to a nursing home and they don't want the state to grab the house to pay for it. Because I am not an attorney, I refer them to an elder care attorney with the full understanding that I will limit myself to the taxation aspects only.

Your point is very well stated. Think the posters are giving discussion to be aware of the tax aspects for various scenarios.

Heard of too many situations where people did not consult with an Elder Care Attorney and/or Tax Attorney (sometimes due to the high fees) to handle the legal and tax consequences. Rather, they went to a "non tax" Attorney to handle the legal transfer without addressing the tax consequences which created problems later.

[ATSMAN]

Your point is very well stated. Think the posters are giving discussion to be aware of the tax aspects for various scenarios.

Heard of too many situations where people did not consult with an Elder Care Attorney and/or Tax Attorney (sometimes due to the high fees) to handle the legal and tax consequences. Rather, they went to a "non tax" Attorney to handle the legal transfer without addressing the tax consequences which created problems later.

When some of my clients balk at paying attorney fees to seek legal advice, I tell them to weigh the risk of a wrong decision. I tell them a situation that happened to one of my uncles. His daughter got him to transfer his $400K house to her and her husband without a life estate clause. Daughter got cancer and son-in-law kicked him out of the house because he could not deal with two sick people!

[Uncle Sam]

Transfer of House Where FMV was lower than basis

I have a client (2 time divorcee) who at end of tax year 2 years ago transferred the bulk of his personal investments to a trust for
the benefit of his two children. Client was then 83, children under age 50.
Son lives in FL, daughter in GA.
He first tells me this in February after the year closes.
So a 709 is prepared and filed with FMV information supplied by broker.

I found out just this past tax season - that at the same time he transferred the securities to a trust - he ALSO
gifted a residence he owned in GA, that the daughter has been living in for years.
So I had to amend the 709.
Client bought the residence originally - but the FMV of the property at time of transfer to daughter
was about 50% of purchase price.

[tsuewalker]

Transferring ownership of house to daughter

The client is only 64. Her daughter is in her 30's. This home was the original home of the client. She remarried and she and her husband built a new house and are and will be living in that house until death. She simply wants to give the house to her daughter so that she can have a place to live. No benefit to daughter except she has a roof over her head. Single mother who makes little money. Not trying to pull a fast one on IRS or anybody else. I really appreciate all the feedback. Thanks in advance!!!

tsw

[taxmom34]

how about letting daughter live in house rent free and she inherits when mother dies?

[DaveO]

If the daughter owns and lives in the home for two years the lack of basis step-up is moot since she will qualify for the personal residence exclusion.
That is unless the house is in a hot real estate market where the gains could exceed the limits.
I would say file the gift tax return and let it go.

[Lion]

How much is mother's adjusted cost basis? Daughter might have a profit greater than $250,000 when she sells. And, if daughter rents it out or rents a room, she may have a very small basis for depreciation. If daughter's as low income as you imply, she might not benefit from property tax deduction. Does mother benefit from property tax deduction? Does daughter earn enough to pay the taxes and keep up the house, or might she lose it for back taxes or to another creditor? Is house safer in mother's hands, from foreclosure, for instance? Lots of things to consider. Mother needs an estate lawyer as well as a tax adviser.