trust and heirs buying a house

[terimac4]

My mother-in-law bought a home here in NC for cash last March after selling her home in CA. Capital gains were within the allowed income limits. She now has decided to move back and buy a home again in CA. Currently the house in NC is in her trust. She wants to put one of her sons on the deed of the new house rather than put it in the trust (personal reasons). Are there negative tax implications for the son in doing this rather than having the home stay in a trust? 

[DianeW777 · Accepted solution]

It depends, however usually a gift ends up with a lower cost basis.  The son would no longer inherit the home, instead he would be receiving a gift.  The cost basis for a gift is the same as the giver, however the inherited value is the fair market value (FMV) on the date of death.  There is no increase to the gift after the date of the gift unless the recipient invests in capital improvements to the home.

There can be a significant difference in cost basis depending on time, as well as facts and circumstances. For example, the area where the home is located will dictate how much the value will increase over time.

An inherited home is considered as being held long term which allows for special capital gains tax when sold.  A gift has the same holding period as the giver, which could be short term.

If your mother-in-law doesn't say in this new home for at least 24 months then she will not receive the special home sale exclusion on the NC home.