DEAR BOB: My husband and I want to give our daughter and son-in-law $100,000 to buy a house. To avoid paying a gift tax, we suggested putting our names on the title, strictly as a formality. My daughter’s husband does not agree. He suggests we lend them the money and then forgive the loan. Is this a good idea? –Maria P.
DEAR MARIA: No. Presuming you and your husband really want to give them $100,000 with no strings attached, just write out a check to them for the $100,000.
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You can each give each of them $12,000 tax-free per year. That means you can give $24,000 and your husband can give $24,000 tax-free for a total of $48,000 this year. You don’t even have to file a federal gift tax return for those $48,000 total gifts.
However, as to the $52,000 excess, you and your husband must file federal gift-tax returns for $26,000 each. But no gift tax will be due unless each of you has given away more than $1 million in lifetime nonexempt gifts.
The $26,000 individual nonexempt gifts will be subtracted from your $1 million lifetime gift tax exemption. For more details, please consult your tax adviser.
TRADE IS ONLY WAY TO AVOID TAX ON INVESTMENT REALTY SALE
DEAR BOB: We own a rental beach house that we plan to sell next summer. It is worth at least $300,000 free and clear. If we use that money to pay off the mortgage on our primary residence, can we avoid paying capital gain tax on the beach house sale? –Reba S.
DEAR REBA: No. The only way to avoid capital gain tax on the sale of a rental property is to make an Internal Revenue Code 1031 tax-deferred exchange for another “like kind” investment or business property of equal or greater cost and equity.
Any cash “boot” you receive from the beach house sale will be taxed. For details, please consult your tax adviser.
NO STEPPED-UP BASIS AFTER RECEIVING NEW DEED IN A DIVORCE
DEAR BOB: I am in the process of obtaining a divorce. I was awarded the house in lieu of child support. I filed for change of name on the deed. When I eventually sell the house, is my cost basis the original purchase price or am I entitled to a stepped-up basis as of the date of the new deed? –Athena DeF.
DEAR ATHENA: The only time a stepped-up basis to market value can be obtained is when you inherit property from a deceased owner. Because you didn’t inherit anything, your cost basis remains unchanged. Your tax adviser has further details.
The new Robert Bruss special report, “When It’s Smart to Prepay or Refinance Your Mortgage,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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