Question from Bruce Georgeson:
I have a question on Capital Gains. I am currently living in a home that has been handed down when my dad passed away. The house is now in my Uncle's name and we would like to transfer the house to my name. He is afraid that the capital gains is going to be too much. There is no mortgage on it or any other funds owed on it. For what the house was originally purchased for and what it is supposedly worth now he would get hit with high taxes. Someone is going to have to pay for these taxes. My family is low income and the property is in need of major repair immediately. Like at probably more than $25,000. We are eligible for local assistance in helping with the improvements only if the house is in our name. The Capital Gains taxes are going to be pretty steep for us to afford on top of having the home extensively repaired. Is there anything that can be done to reduce or eliminate the tax due? Could he give us a gift as part of the amount due to lower the asking price?
Answer By William Bronchick:
I don't see any capital gains tax problem here. I am not clear on who the property was left to from your father's estate, but if the property is in your Uncle's name, I will assume that it was left to him. In that case, the property passed through your father's estate and the tax basis was stepped up to its market value at the time of his death. For example, if your father paid $20,000 30 years ago and it was worth $190,000 at his death, your Uncle's basis is $190,000.
One can gift $10,000 per year to any number of individuals per year without consequence. If your Uncle passes title to you for free, it is a $190,000 gift. No taxes due now, but he would file a gift return and $180,000 would be debited to his "unified credit" (lifetime transfers). When your Uncle dies, the amount of property he can leave without federal estate tax (currently $650,000) is reduced by $180,000. As the recipient of the gift, your basis is equal to his, thus your tax basis would be $190,000.
Disclaimer: The foregoing is not intended to be given as legal, financial or tax advice, but intended for instructional use only. If you require legal, financial or tax advice you should seek the assistance of a qualified professional.
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