Licensed Attorney in HI, CA & NV
3449 Akala Dr., Kihei, HI 96753
P.O. Box 3464 Incline Village, NV 89450
1. Keep it until you die. If your estate is below the unified tax credit, currently $4.49
million in 2017, when you die the property tax basis will be STEPPED UP to fair market value, saving your children capital gains taxes on the appreciation.
2. Give it to your kids now for free. You can give your home to your kids now without paying a conveyance tax but you will tap into the unified federal gift and estate tax exemption which is $4.49 million in 2017. Each year you can give away $14,000 per person without paying a gift tax. As long as the net figure is less than $5.49 million you won’t own any gift tax but this amount adds up during your entire life. This method doesn’t give the kids a step up in basis so they may have to pay capital gains tax when they sell it.
3. Sell it to your kids for full price. If your kids don’t have the money they can make a small down payment and carry a note on the property where they pay in monthly installments. This way they can write off the payments as qualified mortgage interest and they don’t get hit with capital gains tax. The only downside is that you have to pay income tax on the payments. You can keep giving them the annual gift amount to ease the burden of the payments.
4. Rent it from your kids after they buy it. The IRS doesn’t like you to transfer your house and continue to live there. The payments to your children can help finance buying the home. The children can also claim rental property depreciation. This is only possible if you sell the house for fair market value and pay market value rent, otherwise the IRS may say you didn’t give up possession and enjoyment of your home and get you for the date of death value of your home in your taxable income.
5. Use a Qualified Personal Residence Trust (QPRT). Using a QPRT you can gift your house to your kids while still living in it without having them pay the fair market value price. This required you to put the property in an irrevocable trust for several years. The IRS has a calculation to value the right to live in the house. When the duration of the trust is up, the owner can pay rent to the children. The down side is your kids can kick you out onto the street and if you don’t outlive the trust then the kids receive no tax breaks.