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  1. #1
    Join Date
    Jul 2006
    Posts
    6

    Default Tax on Gifting Real Estate in California

    I live in CA. and plan on gifting my Son a home that i own, without a mortgage. Since the amount is over the allowable tax-free amount of $13,000 for the year, will i have to pay a gift tax? If so, what is the percentage? also, how is the value of the house determined for gift-tax purposes? thank you.

  2. #2
    Join Date
    May 2009
    Posts
    12

    Default Re: Tax on Gifting Real Estate, Ca

    You are allowed a $1 million lifetime gift tax exemption, which means that until you reach that $1M limit your gift will not be taxed (just subtract the value of the house from $1M to determine how much you have leftover to gift in your lifetime without it being taxed).

    The $13,000 annual gift tax exclusion just means that you can subtract that amount from whatever gifts you make that year for gift reporting purposes. The rest you will have to report to the IRS (value of house minus $13,000 gift tax exclusion).

    Since you are gifting the house to your son, the house will not be reassessed for property tax purposes.

    You should consider letting your son inherit the house as an alternative though because if he tries to sell the house he will likely face a very high capital gains tax. This is because the amount taxable will be significantly higher if you gift it to him (since you have to account for the current value of the house minus what you paid for it) as opposed to if he inherits it from you (current value of the house minus fair market value of the house the day he inherits it).

    Then again, if he lives in the house and holds title to it at least 2 years before selling it, he can take advantage of a federal tax $250,000 exclusion if he's single, and a $500,000 exclusion if he's married.

    The % of tax you will likely be facing is close to 25% (including federal + state).

    I know this is confusing, but I hope it helps! Consult an estate planning attorney if you need more help.

  3. #3
    Join Date
    Jul 2006
    Posts
    6

    Default Re: Tax on Gifting Real Estate, Ca

    Thank you so very much; you explained it well and gave me additional important information. When you mentioned that the value of the house is subtracted from the life-tax exclusion amount, how is the house value determined? Is the house value determined by a current appraisal that reflects the fair market value, or by others means. thank you again.

  4. #4
    Join Date
    Oct 2006
    Posts
    16,263

    Default Re: Tax on Gifting Real Estate, Ca

    Quote Quoting scarlet
    View Post
    Thank you so very much; you explained it well and gave me additional important information. When you mentioned that the value of the house is subtracted from the life-tax exclusion amount, how is the house value determined? Is the house value determined by a current appraisal that reflects the fair market value, or by others means. thank you again.
    For gifting purposes the current fair market value would be used to determine how much of your lifetime exclusion for gifting, that you would be using up.

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