i own an investment property and would like to give it to my son, how do i do it??

Question

an investment appreciated $50,000 more than the original price. i took depreciation and rental for the last 3 years and now, would like to "give" or sale it to my son. how do i do it legally and what is the consequences on taxes?

Answer 1

From a tax perspective, there may not be any immediate tax consequence if you use your lifetime gift tax exclusion to "gift" your son the property. But it is depending on the fair market value of the property at the time of the transfer and the lifetime limit is 1million (gift tax exemption) for 2007.

The drawback is that your son will take the adjusted basis (your original cost - depreciation taken) and will need to report gain when he sells, as opposed to taking a stepped-up basis to FMV on transfer of property due to death.

There will also be property tax issue. Depending on where you reside, there may be a reassessment on property value that may change your property tax bill significantly.

Another way is that you can set up an LLC, put the property into the LLC and give 12,000 worth of LLC interest to your son every year.

There are a lot of planning opportunities.The best is to talk to a CPA who specializes in gift and estate tax area and ask the CPA to refer you an attorney who can draft the legal documents for you.

Answer 2

You don't need to hire an attorney. In fact, unless the attorney specializes in taxation, I wouldn't even consider an attorney. You should see a CPA for your situation.

First off, you are talking about a related party transaction and the arrangement needs to be an "arms length" transaction, meaning that you won't escape taxation through any kind of "sweetheart" deal. The gift tax would apply if you give it away in one year and your son would get to pay income tax on it when it's sold, based on your basis in the investment. You might think about setting up a corporation with the investment(s) being the assets and the corp would issue stock in exchange for it. Then, I think you could turn around and gift him $12K worth of stock in the corp every year until all of the stock has changed hands. I don't know if that approach would work, but a good accountant could research it for you and give you an answer.

Answer 3

You can give him a share (10% for example) of the property every year until he owns the entire property outright.

This year you can give him up to $12,000 of the property. You will need to check out the details with a tax attorney to see if this is a proper way of giving away the property.

Answer 4

From a tax perspective the best way would be to leave it to him in your will. That way you dodge the Gift Tax issue and he gets the stepped up basis upon your death.

Another option would be to put it in a trust with him as beneficiary. That will expedite the transfer of title to him on your death and he still gets the stepped up basis.

Setting up an LLC would be a waste of time and money as it offers no tax benefits for either of you and has many pitfalls.

Consult with an estate planner for guidance on the best way for you to handle this for YOUR situation.

Answer 5

Check with an attorney. The tax consequences for both of you could be disastrous, if you try to get too clever.

Answer 6

You need to consult a real estate attorney. Don't try to "do it yourself" to save a few hundred dollars in legal fees.

Answer 7

you could sell it to him for a buck and then would only pay mim. amount of taxes.you could just give it to him as a gift i dont think that would be taxed.if he inherited it taxes would get him there, so i would check out the gift part .