Friday, June 21, 2013

Rules for Gifting Property

Benny Kass advises a couple who are attempting to gift a $200,000 to their two grandchildren using the annual gift exclusion:

[I]f you decide to go this route, each year you and your wife can gift $56,000 worth of the property to your two granddaughters. If the property value stays under $224,000 — and the current exclusion number stays the same — you can complete the transfer within four years.

[But] in many cases, such a gift could be a disservice to the granddaughters. When you gift them the property, your basis for tax purposes becomes their basis. So if you bought the property for $100,000, that's their basis. If they sell for $300,000 down the road . . . they will have to pay a lot of capital gains tax. [...]

But if you die, and your grandkids inherit the property, under current law they get what is known as the stepped-up basis. In other words, their tax basis is the value of the property on the day you died.  So, my firm suggestion: Let them inherit the property, and leave it to them in your wills.

Steve Clowney

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