QUESTION
Does my son have to pay the taxes on the home transferred to him while I’m living but sold it after I passed?
Asked on Sep 23rd, 2012 on Estate Planning - Michigan
16 ANSWERS
Tamara Marie Chin
Yes.
Answered on May 28th, 2013 at 3:08 AM
Trust Attorney serving Cincinnati, OH
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Paul A. Nidich Attorney at Law
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If you gave him the home without his paying for it, he takes it at the cost basis you paid for it. If it is not his principal residence, then he will have to pay capital gains taxes on the profit, the difference between what he paid for it minus what you paid for it; adjusted for certain capital expenditures on the home.
Answered on Sep 29th, 2012 at 12:00 AM
If you gift real estate to your son during your lifetime, then he will inherit your cost basis for the property. Upon transfer, you will need to file a gift tax return and incur any gift tax consequences of the transfer. When your son subsequently sells the property, he will need to pay capital gains taxes if applicable. However, if your son inherits your real estate upon your death, then there will be no gift tax return required and your son's new cost basis in the property will be the value of the property as of your date of death. If your estate is large enough to be subject to a state or federal estate tax, then the real estate would be included as part of your taxable estate and your estate would be liable for such taxes.
Answered on Sep 25th, 2012 at 3:38 PM
It is possible that there would be taxes due on property acquired by gift that would not be due on property acquired through death. You should consult a CPA before making this gift. Also, you should consult an estate planning attorney as there are other pitfalls when property is transferred during the lifetime of the owner, rather than upon their death.
Answered on Sep 25th, 2012 at 3:38 PM
Business Law Attorney serving Bingham Farms, MI
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James T. Weiner, P.C.
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Property taxes are assessed against the property. Whoever owns the property must pay them or make arraingments to pay them (by leaseing or selling on land contract) So if your son owns the property to protect his equity he must pay the taxes. If the taxes are not paid for several years the property will be sold at one of the annual county tax sales.
Answered on Sep 25th, 2012 at 1:27 PM
Taxation Law Attorney serving Glendale, CA
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Irsfeld, Irsfeld & Younger LLP
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Your question is a bit ambiguous. What taxes? The owner of the property must pay the property taxes. Income taxes? I understand your question to mean that you plan to give (as opposed to sell) the property to him. If the value is greater than $14,000 you will be required to file a gift tax return, although it is likely that no gift tax will be due. Is there a mortgage or trust deed loan encumbering the property, then it might be treated as a partial gift and partial sale (sale amount being the balance due on the note). However, if you are asking what will happen when he eventually sell the property, that depends on some additional factors. If you give him the property now, his basis will be your basis if he sells it for more, and it will be the lesser of your basis and the fair market value at the time of the gift if he sells at a loss.
Answered on Sep 25th, 2012 at 1:27 PM
Probate and Estate Planning Attorney serving Harrison, MI
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David T. McAndrew, Attorney at Law
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That depends. First, how are you writing this question? Do they have internet in Heaven? If you deeded the property over to your son while you are living (I assume), this constitutes a gift, and he receives the home with the cost basis that you have. If the property has appreciated, and sometime in the future, after you die, he sells the home for more than you paid for it, then the difference is a capital gain, and like Mitt Romney, will pay capital gain taxes on the property. If he received the home through a will or trust, he would obtain the home at a 'stepped-up' basis, or what it was worth on the day you died. Then, if he sold it the next day, he would not have any taxes, as their would be no appreication. If he resides in the home, and it is his primary residence, he might avoid any taxes if the home is worth less than 25k.
Answered on Sep 25th, 2012 at 1:26 PM
Neal Michael Rimer
If you are speaking of gift taxes when you transfer the home, no, your son generally does not pay gift tax, you do. The donor of a gift is responsible for filing and paying any gift tax due as a result of the gift. It is likely that your unified credit available for gift and estate taxes will avoid you actually having to pay the tax. If you are speaking of property taxes, then yes, your son, as the owner of the home, will be responsible for paying the property taxes on the home. In California, the amount of the property taxes will not increase if the home was your residence and it was transferred to your son and the appropriate assessor's filing takes place. The parent to child transfer exemption would be applicable. If you are speaking of income taxes, there is no income tax on the initial transfer of the house. The tax basis in your son's hands is the same as your tax basis as a result of the gift... unless the fair market value at the time of the gift is less than your tax basis, in which case the tax basis to your son will be limited to the fair market value. When the home is sold, depending on whether it is your son's residence for at least 2 years before the sale, there will be income taxes on the difference between the net sales price and the tax basis. If you son maintains the home as his residence for at least 2 years, then $250,000 of the gain, if he is single, or $500,000 of the gain, if he is married is not taxed.
Answered on Sep 25th, 2012 at 1:26 PM
Estate Planning Attorney serving South Jordan, UT
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Law Office of Russell M. Blood, P.C.
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If you transferred the home to your son during your life time, he received it at whatever your tax basis was, and will pay capital gains tax on the difference between your tax basis and the amount for which he sells the house. On the other hand, if he receives it from you after you die, he will receive a "step-up" in the tax basis to its fair market value at the date of your death, and will pay capital gains tax on just the difference between the date-of-death value and the amount for which he sells it. It is always better, from a capital gains tax perspective, to transfer property to a family member at death.
Answered on Sep 25th, 2012 at 1:25 PM
Federal Taxation Attorney serving Livonia, MI
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Gold & Associates PC
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Sounds like a simple question but really need way more facts. I see a lot of deeds but many are done incorrectly. There isnt any inheritance taxes. There may be income taxes depending on the appreciation of the property. The basis will either be the date of transfer or date of death depending on the deed and facts. The deed would need to be reviewed.
Answered on Sep 25th, 2012 at 1:24 PM
Thomas Edward Gates
Yes, you should have waited to transfer the home at the time your estate was probated.
Answered on Sep 25th, 2012 at 1:23 PM
Business Planning Attorney serving Livonia, MI
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Frederick & Frederick Attorneys at Law
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If I understand your question correctly, yes, he would pay income tax on the difference between your basis, (essentially, what you paid for it), and the sales price. If he had inherited this from you, instead of receiving it as a gift, there would have been no tax. Incidentally, when you gave it to him, you should have filed a gift tax return.
Answered on Sep 25th, 2012 at 1:23 PM
Real Estate Attorney serving Meadow Vista, CA
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The Meadow Law Group
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It does not matter who pays the real estate taxes on the home so as they are paid.
Answered on Sep 25th, 2012 at 1:23 PM
3 Awards
He needs to pay capital gains on any taxable gain. This is calculated by subtracting the purchase price (plus any adjustments to basis) from the net proceeds and multiplying by the capital gains rate. If the home is his primary residence or he participates in a like kind exchange, he may avoid the payment of capital gains taxes at the time of the sale.
Answered on Sep 25th, 2012 at 1:22 PM
You need to consult with a tax advisor. There may be gift taxes or capital gains taxes to be paid.
Answered on Sep 25th, 2012 at 1:21 PM