WASHINGTON POST ARTICLE FROM October 25, 2021
https://www.washingtonpost.com/business/2021/10/20/dont-put-your-kids-title-your-home-theres-better-way-them-inherit-property/
This is an excellent article I want to share because I have had several clients make this exact same mistake, before calling an attorney. Please click on the link provided or read the article posted below. Don't make this costly mistake! - Melissa Anderson
----------------------------------------------------------------------------------------------------------------------- In a nutshell, it might be better for your mom to put the home in a living trust that allows her to control the home while she is alive and allow you to inherit the home through the trust upon her death. (iStock)
By Ilyce Glink and Samuel J. Tamkin
October 20, 2021 at 6:00 a.m. EDT
Q: My mother put me on the deed to a house she purchased five years ago. Recently, she has decided that she wants to sell the house to buy a smaller house in a nearby town. The house has been her primary residence for the last five years, but not mine. I live three hours away. What are the tax implications for me from the sale of the house? She wants to do an 80/20 split with me gaining the majority. I understand what she is trying to do, and I appreciate it and could use the money, however, that kind of money would probably move me into a higher tax bracket. Would it be better for her to take the total gains and then give me what she wants at a later time? A: The simple answer to your question is: yes. It’s better for her to own this property entirely when she sells it. But let’s back up a bit so you both will understand why she made a classic mistake and why she might want to unwind it. More Matters: 6 ways to declutter your parents’ home before a sale First, it’s unclear to us what problem your mother was trying to solve by putting you on the title to the property. Was she hoping to avoid probate when she dies? Was she trying to give you some or all of the property? Did she simply feel better knowing you were on the title to the home and would automatically get the home upon her death? When your mom put you on the title to the home, she might have thought she was doing you both a favor. In a few cases, that may be true. But in many others, it is not. As the owner of the home, your mom gets to exclude from federal income taxes the first $250,000 of profit (up to $500,000 if she was married) on the sale of her home. To enjoy that tax benefit, your mom must meet a number of requirements. Most notably, she must have lived in the home as her primary residence for two of the last five years. Get the day’s most important and interesting stories in a brief text message. When someone dies, their heirs inherit their real estate at its current market value. Let’s say your mom purchased the home for $100,000 and the home was worth around $500,000 at the time of her death. Assuming you inherited the property outright and then sold it immediately, you’d enjoy about $400,000 in profits. However, due to current tax laws, you would technically inherit the home at the home’s value at the time of her death so if you inherited the home and then sold it shortly after she died for $500,000, the IRS would view the property as being worth $500,000.
Comments