Question: I have been living with my 70 year old mother for many years. As a thanks for taking care of her, my mother gave me her home. She signed and recorded a deed granting me the property for one dollar. I am very pleased, but are there any tax implications for this gift?
Answer: Your mother obviously loves you and is grateful for your assistance in her golden years. Regardless of the home’s value, you or your mother will not experience any immediate negative income tax implications from the transfer. Though the I.R.S. considers gifts of cash over $11,000 per year a taxable event, it exempts gifts of real estate. Your larger concern is potential capital gains taxes when you sell the property.
Upon your sale, you may be required to pay a federal and state capital gains tax on the difference between the one dollar transfer cost and the sale price. Your basis will be one dollar, while your sale price will be the total income gained on the sale. Assuming your sale price is $300,000.00, a capital gains tax rate of 15% will be applied to the entire amount. At this price your federal capital gains tax liability starts at $45,000.00. Not to mention a smaller state capital gains tax.
Fear not however, because the I.R.S. exempts the first $250,000.00 gained for single taxpayers and $500,000.00 per married couples, who use the property as their primary residence, for at least two years. If you do not apply for the exemption, perhaps an accountant can assist you in identifying deductible expenses in connection with the property.
On a further positive note, your mother may have protected the home from Medicaid estate recovery, if she qualifies for paid nursing care later in life. Under new rules, property transferred at least five years prior to applying for Medicaid services will be protected from estate recovery liens.
Billerica Attorney, James Haroutunian, specializes in Real Estate Law and Estate Planning. Contact him with questions at 630 Boston Road, Billerica, by phone at 978-671-0711, prioritylaw.com, hlawoffice.com, or by email at firstname.lastname@example.org.