If My Mother Transfers Her $125,000 House to Me Will I Have to Pay Capital Gains Taxes When the House is Sold?

Question

My mother is elderly and thinking about transferring the title of her house to me.

She bought it decades ago for $25,000.

I do not live with her.

If I later sell the house, will I have to pay capital gains taxes on the "profit" of $100,000?

If so, do you have any advice on how to minimize taxes in this situation?

What would happen if she simply added me as co-owner as "joint tenancy with rights of survivorship?" Am I correct to assume that I would again in this situation owe taxes on the $100,000 if the house is sold after she passes away?

Answer 1

If your mother transfered the house to you, it would be considered a 'gfit'. You would not owe any taxes when the house was transfered, and your mother would use part of her lifetime gift exclusion amount for the value of the gift that was over $12,000. (the lifetime exclusion is on $1,000,000 of gifts, so when looking at her estate, assuming she made this gift, her exclusion credit would be for $987,000).

So, if your mom's basis in the house was $25,000, your basis would also be $25,000.

After your mom passes, all of the basis of her capital assets (stocks, mutual funds, houses) would be 'stepped up' so, if you got the house after she died, your basis would be $125,000.

When you sell the house, you owe taxes on the difference between your sale price and your basis.

So, if you got the house at a basis of $25,000, and you sold it for $125,000, and paid $7,500 (6%) to the realitor, you basis would be $32,500, and you would owe Capital Gains tax (15% federal, plus any state depending on your state) of at least $13,875. It would be higher if your state has a capital gains tax as well.

I would definately speak with an estate planning attorney or other tax planner to help you here. It could save you potentially thousands of dollars in taxes.


I hope that helps.

Answer 2

You would owe capital tax at 15% on the 100,000 gain when you sell it regardless of when she passes away. A much better plan is for her to keep the title in her name and just add you as the beneficiary at her death. This is called Transfer On Death or TOD. That way you still get the stepped up cost basis to her death value to compute your gain which would be zero if you sold it soon after death.

Answer 3

A classic case of bad information here.

If your mother gives you the house she will need to file a Gift Tax return since the value of the house exceeds $12,000. The balance will go against her lifetime exclusion, currently $1,000,000, so she probably won't owe any tax. This will also reduce her estate's exclusion dollar for dollar.

You will pay no income tax on the transfer but you will ONLY get her pass-through basis in the home. Her adjusted basis would become your adjusted unless the FMV on the transfer date was less. In either case it would be adjusted upwards for any Gift Tax she paid, if any.

When you sell the home, your gain would be the difference between her adjusted basis passed through to you and the net proceeds from the sale. If you didn't qualify for the exclusion of gain from tax on the sale of a personal residence it would be fully taxable to you.

If your mother added you to the deed as JTROS you would become a joint owner and she would have to file a Gift Tax return if 1/2 of the value of the home exceeded $12,000, again with any excess going against her lifetime exclusion.

In this instance, your basis upon her death would be 1/2 of the passthrough basis from the gift plus 1/2 of the FMV on the date of her death. The gain would be the difference between your new adjusted basis and the net proceeds from the sale. The same tax rules would apply as above.

A better way would be for her to either leave it to you in her will or set up a trust. Consult with an estate planner for the specifics on either of those options. If she leaves it to you in her will, you will get the stepped up basis as of the date of her death and if you sold it immediately no tax would be due. A trust can streamline the transfer process after her death as it would bypass probate for transfer purposes though its value would still be considered for any Estate Tax purposes.

Answer 4

Yes, if she transfers the title to you, you'd have to pay capital gains tax when you sold it.

If instead of a transfer now, you inherit the property, then your basis would be what it was worth at that time rather than what she paid for it, so if you sold it then, there would be very little if any capital gains tax.

Answer 5

Yes,it would count as a buy to let,but you may be able to get around that by selling your own house and then living in your"mother,s house ". This would then become your sole residence and would not therefore be subject to capital gains.To be safe though I'd check with your solicitor first! Good Luck.

Answer 6

One way to avoid tax problems in such a case is for your mother to transfer the property to you, but for her to retain what is called a "life estate" in the property. That means that although you now own the property, she is allowed to live there for life.

The life estate basically trumps the gift vs. inherited basis problem. Your basis will be the fair market value as of the date of her passing, so when you sell it there would be little or no taxable gain.

Life estates are commonly used in medicaid nursing home planning. The paperwork must be done correctly, so make sure you consult a local attorney who specializes in elderlaw prior to doing the transfer.

Answer 7

Why are you assumeing when you know nothong about?

if willed to you there will be no taxes due at this value of house


but she has to pay gift tax at least on 1/2 the value she gives to you now.

Answer 8

In the Philippines, properties gained through legacies are subjected to inheritance tax while properties bought are subjected to capital gains tax. I don't know about laws in the USA. Ask a lawyer.

Answer 9

You should not attempt any title transfer without conferring with a real estate attorney. It will be well worth the few hundred dollars in legal fees.

Answer 10

Yes. But you may want to be careful. Once personal property is legally transferred to another party, that party becomes legally bound to all legal obligations of that personal property.