Tuesday, January 14, 2014
Elderly people sometimes think it’s a good idea to transfer real estate to their children during their lifetime in order to avoid probate. And even uninformed realtors or attorneys sometimes make this disastrous suggestion to their clients.
This idea can have negative income tax results for the children because lifetime gifts take a carryover basis in property received. The carryover basis is determined by what the donor originally paid for the asset plus any improvements made. If a child sells the property, he or she will be taxed on the capital gains that represent the difference between the carryover basis and the sale price. If the child instead received the property as a bequest, he or she would presumably pay much less taxes because of the step-up basis to the date of death value.
For more of this topic, check out Steven J. Fromm’s blog below.
See Steven J. Fromm, The Biggest (Tax) Loser: Misguided Gifts of Real Estate by Uninformed Do It Yourselfers, Realtors & Attorneys, Philadelphia Estate and Tax Attorney Blog, Jan. 10, 2014.