| As a Certified Financial Planner, I'm
| |
| | check with an accountant.)
|
| often asked about issues regarding
| |
| | Inheritances aren't subject to Federal
|
| inheritance, gifting and the resulting
| |
| | Estate Tax unless the estate's value is
|
| taxes. Here's a classic example of just
| |
| | over a certain amount, which is currently
|
| how complicated these situations can be,
| |
| | two million dollars. Because all assets
|
| using a question from a reader in
| |
| | owned by the deceased are included in the
|
| Michigan we'll call Bob.
| |
| | estate's valuation (i.e. retirement
|
| Bob writes, "I have a question about my
| |
| | accounts, annuities, life insurance,
|
| mom's home that I inherited. Before my
| |
| | etc.), reaching that two million dollar
|
| mom died she put her real estate into
| |
| | limit is easier than you think.
|
| joint ownership between her and my
| |
| | Even if there is no gift or estate tax
|
| sister. It was supposed to help make
| |
| | when the assets are transferred, there
|
| settling her estate easier. Before mom
| |
| | can be capital gain taxes when the assets
|
| passed away, my sister died. After my
| |
| | are sold. The trick is determining the
|
| sister died, mom placed the real estate
| |
| | asset's original value, or cost basis,
|
| jointly between herself and me. Mom
| |
| | and that depends on whether the asset was
|
| passed away over a year ago and I am now
| |
| | a gift or an inheritance.
|
| contemplating the sale of her house.
| |
| | When you receive a gift, you also receive
|
| After mom's death I had the home
| |
| | the cost basis the person giving the gift
|
| transferred to my and my wife's names.
| |
| | had. So, if a parent paid $10,000 for a
|
| What are my capital gains liabilities on
| |
| | home and it was worth $100,000 when it
|
| the sale of the house? Do I pay capital
| |
| | was gifted to the child, the child now
|
| gains on the whole sale, half the sale,
| |
| | has a cost basis of $10,000. If the house
|
| or none of the sale?"
| |
| | is sold 5 years later for $125,000, the
|
| Bob's lack of knowledge is nothing out of
| |
| | child will owe taxes on a gain of
|
| the ordinary. Few people are aware of the
| |
| | $115,000.
|
| tax implications and needlessly end up
| |
| | If the house was instead inherited by the
|
| creating a tax headache for themselves
| |
| | child, the cost basis is the value of the
|
| and their loved ones.
| |
| | house at the time of inheritance, which
|
| Let's explain what an inheritance is and
| |
| | in our example would be $100,000. So when
|
| how it differs from a gift. An
| |
| | the house is sold 5 years later for
|
| inheritance is money, property, or
| |
| | $125,000, the child only owes taxes on
|
| another asset of value that is
| |
| | the gain of $25,000. In tax parlance, the
|
| transferred after death. A gift occurs
| |
| | house received a step-up in basis when
|
| when money, property or other assets are
| |
| | transferred after death. It doesn't
|
| transferred before death. An inheritance
| |
| | receive a step-up if transferred prior to
|
| and a gift are handled very differently
| |
| | death.
|
| from a tax standpoint.
| |
| | Let's apply this to Bob's situation. When
|
| Each of us can give gifts up to $12,000
| |
| | Mom added Sister's name to the deed, it
|
| per year to any person we want without
| |
| | was a gift to the sister of 50% of the
|
| any Federal tax implications. (There may
| |
| | value of the home and Sister's cost basis
|
| be some state gift tax implications so
| |
| | was 50% of Mom's cost basis.
|
