Real Estate Gift

[nh_624]

Hello,

My parents gifted me their house in 2010.  Now they want me to add my two brothers on the title.  At the time they gifted me the house it was about $90,000.  Now, the house is worth about $415,000.   What are my tax consequences if I add them on the title? What do I need to file?  Is it better to just make a contract that after parents don't live in the house anymore which could be 10-15 years, that I would sell the house and after paying all taxes to split the profit.  Please advice.

Thank you

[tagteam]

You might want to discuss your scenario with estate planning counsel.

See https://www.avvo.com

Perhaps, look into a TOD deed (if permitted in the state) or a deed from your parents reserving a life estate, but discuss these options with a local attorney.

[nh_624]

Besides of making the decision whether I should do another contract instead of adding to the deed, could you please explain the other parts of the question in regards to the tax implications if I do add them to the title now.

[tagteam]

Assuming you now own the house in fee simple absolute (i.e., you're the sole owner without restrictions or reservations), then you would be making a gift if you added your brothers to the deed.

There would likely be no federal tax consequences, but you would also have to file a gift tax return (Form 709).

See https://www.irs.gov/instructions/i709#en_US_2023_publink16784xd0e314

[note that the annual exclusion is $18,000 for 2024]

[nh_624]

How would I calculate the basis for myself and my brothers if I do equal 3 split of the property.  Also, do I have to file Form 706 or where is the gift basic exclusion amount is calculated?

[tagteam]

You would file Form 709, not Form 706, and the annual exclusion would be reported on that form (currently $18,000 per donee per year).

The gift to your brothers would be 2/3 of the fair market value on the date of the gift (1/3 of the FMV to each brother).

The basis for your 1/3 would be a carryover basis from your parents (i.e., 1/3 of your parents' basis, so you would divide your original basis by three).

[nh_624]

I am still unclear if I have to owe gift tax after the $18,000 exclusion to each of my brothers?  I never gifted real estate to anyone else before.   Isn't there a $12,920,000 gift exclusion for real estate?  I am also planning to transfer my own personal residence into a revocable living trust for the benefit of my children.  Is this also considered a gift when I put my personal residence into a trust and is it also added to the $12,920,000 exclusion?

[tagteam]

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@nh_624 wrote:

I am still unclear if I have to owe gift tax after the $18,000 exclusion to each of my brothers? 

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No, you just need to file a return (Form 709) if the gift is more than $18,000 (for 2024).

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@nh_624 wrote:

Isn't there a $12,920,000 gift exclusion for real estate? 

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There is a $13.61 million lifetime exclusion, and it applies to all of your assets.

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@nh_624 wrote:

......Is this also considered a gift when I put my personal residence into a trust ....

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No, not if the trust is the typical, revocable trust (aka living trust).