Is Gifting Real Estate A Good Idea?

I receive a lot of questions regarding gifting real estate as a means to pass along property prior to death and remove it from the estate.

In theory it sounds good, but in many cases it does not accomplish what the giftor intended. Here are some things to consider before taking any action.

1. When you gift real estate the person receiving the property inherits your tax basis and /or depreciation taken. So, if you paid 100K for the property and it is worth 500K, the recipient will owe taxes on 400K when they sell.
2. If you are giving the gift to remove property from your estate, you have to realize you may have to pay gift tax. You have a maximum of 1 million dollars to give during the course of your lifetime without paying gift tax. Once that amount is exceeded, it is you who will have to pay the tax on each gift. (There is an annual amount of 12K that can be gifted to any one person without counting against your maximum lifetime gift amount)
3. If you are trying to remove property from your estate so you will qualify for State or Federal assistance for medical care or a nursing facility, there is now a 5 year look back period. This means that if you didn't give the property away at least 5 years prior to when you need to qualify for assistance, they count it as if you still have the money and you won't qualify. This is to prevent individuals from wiping out their estate for the express purpose of qualifying for government aid.

Of course, there are times when gifting does make sense. It really depends on the individual situation and goals. Before doing anything you might later regret, consult with a professional who can explain the ins and outs. It is very possible the desired results can be attained using a different approach.

Paula Straub 760-917-0858

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