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44876
Level 2

Real Estate Inheritance

I plan on giving a property to my children.  No one in the family lives in this property.  I have a low cost basis.  When the children inherit the property do they then get a stepped up value due to a new appraisal?  If they do receive the stepped up value is that the new cost basis for the property?  This would be extremely important as they may then sell the property.  

4 Replies
VolvoGirl
Level 15

Real Estate Inheritance

Yes if they inherit it when you pass.  If you give it to them now before you die it is a gift and they keep your low cost basis.  

44876
Level 2

Real Estate Inheritance

So I may understand lets' say my cost basis is $350,000 due to improvements.  The initial cost was $133,000.  It may be assessed today at $1,250,000.   If I understand you then when I die their cost basis is $1,250,000 and if they sell the property they only owe taxes of capital gains above $1,250,000.  Am I correct?  

rjs
Level 15
Level 15

Real Estate Inheritance


@44876 wrote:

So I may understand lets' say my cost basis is $350,000 due to improvements.  The initial cost was $133,000.  It may be assessed today at $1,250,000.   If I understand you then when I die their cost basis is $1,250,000 and if they sell the property they only owe taxes of capital gains above $1,250,000.  Am I correct?  


That is correct as long as you continue to own the property until you die, and your children inherit it after you die. But in your original question you said "I plan on giving a property to my children." Giving is not inheriting. If you give it to them while you are still alive, their basis is the same as your basis, $350,000 in your example. Their capital gain would then be the entire increase in value above $350,000.


You also said "No one in the family lives in this property." Who does live in it? Are you renting it to a tenant? If you are renting it out, or if you ever rented it out, that could change the calculation of the basis. If it's not rented out, what is it used for?


What type of property is it? Is it a single-family home, or something else?

 

Opus 17
Level 15

Real Estate Inheritance


@44876 wrote:

So I may understand lets' say my cost basis is $350,000 due to improvements.  The initial cost was $133,000.  It may be assessed today at $1,250,000.   If I understand you then when I die their cost basis is $1,250,000 and if they sell the property they only owe taxes of capital gains above $1,250,000.  Am I correct?  


You need to see a professional, either an accountant with legal training or a lawyer with tax training.  Elder law firms specialize in this sort of arrangement and have specialists of both type on staff.

 

The exact method of transferring the property is important, the wrong kind of deed can subject your kids to extra taxes.  There are ways of transferring the property so that it does not pass through probate (life estate, family trust, and so on) but you have to do it properly.  If the property is used in business, some methods may not work correctly compared to if you were living in the property.

 

It's too much money to mess around with.

 

The simple answer is that they children can inherit with a fully stepped-up basis, if you do it properly.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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