Do gifts of property to children trigger taxes?
QUESTION: Do gifts of property to children trigger taxes?
ANSWER BY RICK COURTNEY:
One thing we hear often is, “if I deed my house or my property to my children they are going to have to pay taxes on it. Right?” Well, the answer is probably no, and here’s why. If you deed property to a child, that’s a gift of that property and there is no gift tax that the child would pay. The gift tax is not made by the recipient of a gift. It would only be paid by the giver.
If your estate is less than $5.3 million – that’s in 2014 and it goes up each year – then you would not make any gift tax on any gifts during your lifetime below that amount.
The problem for your child may be that if your property has appreciated in value since you bought it, the difference between what you paid for it (your basis) and what it sells for later, is the gain. That’s called capital gain.
If you deed your property to your child, you give them your basis along with it. So when they later sell that property, they have to pay capital gains income tax on the difference between the basis and the sales price, that capital gain.
However, if they inherit the property from you, and don’t receive full ownership until your death, they get a new basis that is what its value is at your death, so there’s no capital gain for them later.
So the answer, will my kids pay taxes if I give that the property? No. There’s no gift tax. It’s not income tax to them, but they might pay capital gains tax later if they sell the property.
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