Dad Wants to Sell His Land to Me Cheaply in Lieu of Leaving It in His Will
My question involves real estate located in the State of: Texas
My dad owns some land and wants to sell it to me very cheaply in lieu of leaving it to me in his will, which would result in will taxes. What's the best way we can go about doing this with the least amount of cost?
My apologizes if this is the wrong area to post this in; if so, please point me in the right direction.
Re: Dad Wants to Sell His Land to Me Cheaply in Lieu of Leaving It in His Will
What will taxes are you speaking of? Is the estate very very large and the land worth millions?
Re: Dad Wants to Sell His Land to Me Cheaply in Lieu of Leaving It in His Will
He was told by a friend that there would be taxes if he left the land to me in his will; I've had a difficult time finding any laws on Google that would clarify this, though. The land is small, less than two acres, and worth around 20,000$.
Re: Dad Wants to Sell His Land to Me Cheaply in Lieu of Leaving It in His Will
On Dec 31st have him gift you half, then on Jan 1st the second half.
Re: Dad Wants to Sell His Land to Me Cheaply in Lieu of Leaving It in His Will
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azfromthegreatbeyond
He was told by a friend.
If that friend wasn't a tax pro your Dad would be foolish to pay attention to that advice.
There will always be taxes of some sort. Usually when you sell it you will be taxed on the gain. There's no federal tax on the gift or the inheritance if the value doesn't exceed the $5,000,000 or so lifetime gift exclusion.
If it's a gift your tax basis is -0-. If you sell it for $20,000 you pay tax on $20,000.
If you buy it for less than $20,000 and sell it for $20,000 you pay tax on the difference.
If you inherit it your tax basis is the fair market value at the time of your Dad's death. Let's say that's $20,000. If you keep it for a few years and sell it for $30,000 you pay tax on $10,000.
That's all overly simplified, of course, and actual amounts might vary based on a variety of factors.
Disagreeable's suggestion is based on the $14,000 annual gift exclusion. A $14,000 gift in any one year doesn't create any tax issues.
However, that exclusion is per person. If you are married, he can gift the property to you and your wife all at once. If he is married, he and his wife can gift the property to you all at once.
If it's necessary to split the gift between this year and the next a quitclaim deed for 50% each time should suffice but I would have a lawyer draft it to make sure it gets done right.
Re: Dad Wants to Sell His Land to Me Cheaply in Lieu of Leaving It in His Will
She was told that by her lawyer and I believe passed that information to him when he mentioned it.
Re: Dad Wants to Sell His Land to Me Cheaply in Lieu of Leaving It in His Will
Second or third hand information is useless.
Your Dad should be talking to his own tax pro.
Re: Dad Wants to Sell His Land to Me Cheaply in Lieu of Leaving It in His Will
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adjusterjack
If that friend wasn't a tax pro your Dad would be foolish to pay attention to that advice.
There will always be taxes of some sort. Usually when you sell it you will be taxed on the gain. There's no federal tax on the gift or the inheritance if the value doesn't exceed the $5,000,000 or so lifetime gift exclusion.
If it's a gift your tax basis is -0-. If you sell it for $20,000 you pay tax on $20,000.
If you buy it for less than $20,000 and sell it for $20,000 you pay tax on the difference.
If you inherit it your tax basis is the fair market value at the time of your Dad's death. Let's say that's $20,000. If you keep it for a few years and sell it for $30,000 you pay tax on $10,000.
That's all overly simplified, of course, and actual amounts might vary based on a variety of factors.
Disagreeable's suggestion is based on the $14,000 annual gift exclusion. A $14,000 gift in any one year doesn't create any tax issues.
However, that exclusion is per person. If you are married, he can gift the property to you and your wife all at once. If he is married, he and his wife can gift the property to you all at once.
If it's necessary to split the gift between this year and the next a quitclaim deed for 50% each time should suffice but I would have a lawyer draft it to make sure it gets done right.
I need to correct one small part of that. In a gift situation the basis of the gift is the basis of the giver. So, if dad gifts the land to son, and originally paid 5k for the land, then the son's basis is 5k. Therefore the capital gain would be any price the son sells it for, minus the 5k basis.
Generally, the best way to reduce potential tax on gifted property is to receive it as an inheritance.
Re: Dad Wants to Sell His Land to Me Cheaply in Lieu of Leaving It in His Will
I didn't notice this originally, but I would like to point out that I am female and do not have a wife. Thank you for all your help; we'll definitely talk this all out!
Re: Dad Wants to Sell His Land to Me Cheaply in Lieu of Leaving It in His Will
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azfromthegreatbeyond
I didn't notice this originally, but I would like to point out that I am female and do not have a wife.
The point was addressing spouses.
Besides, females can have wives these days.
Re: Dad Wants to Sell His Land to Me Cheaply in Lieu of Leaving It in His Will
Just to add to what the others have said, if the land is sold to you at below fair market value then the transaction is part-gift, part-sale. This makes it a tad bit more complex in computing the gain for you later when you sell it. But it is one option that may allow the transfer of the property now without even using up any of your dad’s lifetime unified credit against federal estate and gift tax. And usuing up that credit only really matters if he has now or expects to have later assets that will exceed well over $5 million. While getting it out of his estate now might provide him some gift and estate tax benefit, it comes at the cost to you of potentially more income tax gain to pay when you sell it later. If you get the property by inheritance after he dies, the gain may end up being a whole lot less than if he gives it to you now as a gift. Thus, for parents whose estates aren't going to be large enough to be subject to federal estate tax and who live in and have all their assets in a state that has no death taxes (like Texas), it is generally better taxwise to hold on to the property until they die and then pass it on to their kids as it reduces the income tax that the kids may have to pay on it later.
Re: Dad Wants to Sell His Land to Me Cheaply in Lieu of Leaving It in His Will
It could be worse. You could be one of exiles from CA that invaded Sedona.
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azfromthegreatbeyond
I didn't notice this originally, but I would like to point out that I am female and do not have a wife. Thank you for all your help; we'll definitely talk this all out!