Gift of Property to avoid taxes

[lbhancock46]

I have property worth about $60K that I have a buyer for. Can I gift the property to my three sons and let them sell the property without me and my sons have to pay taxes on the sale?

[tagteam · Accepted solution]

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@lbhancock46 wrote:

I have property worth about $60K that I have a buyer for. Can I gift the property to my three sons and let them sell the property without me and my sons have to pay taxes on the sale?

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No. Assuming you would have a gain on the sale if you sold it yourself, then your sons would take your adjusted basis in the property as a result of the gift. Thus, they would essentially assume the gain you would have had if you sold the property (only they could split the gain three ways if given equal shares).

See https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/property-basis-sale-of-home-etc/prope...

[Opus 17]

You owe capital gains tax on your gain, the difference between the purchase price and the selling price.  Let's assume you paid $30,000 and sell for $60,000.  You pay capital gains tax on $30,000.

If you gift it to your sons (1/3 each) then your sons' "cost" is $10,000 each and the sales price is $20,000 each, so they each have a taxable gain of $10,000.

If they are age 24 or older, and their total taxable income (including this gain) is less than $39,000 then their tax rate on the gain is 0%, where your rate might be 15%.  So you could possibly avoid paying tax.  But if they pay you back, so the transfer is only on paper, not in real life, that's fraud if the IRS catches you.  The IRS can get you for fraud for doing something that has an improper purpose, even if the individual steps are technically legal.  And if they are age 23 or less, your sons may be subject to the "kiddie tax" which could be as high as 37% (but probably 24% in this case) where your tax rate would probably only be 15%.

So don't fiddle around.  Just be square and sell the property and pay the tax, unless you really are planning on making a bona fide gift of the money to your adult children.

[macuser_22]

Also note that to be a gift there can be no strings or conditions attached.    The receiver of a gift can do anything that he wants to do with  the gift.   Once you place *any* condition on the gift then it is not a gift at all.   If you place the property in your child's name with the condition that they sell it to avoid tax at your rate then that would be a sham gift and would be considered to be tax fraud.

[lbhancock46]

Thanks for your informative replies.