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Ask Dave

Is Inheritance The Way To Go?

What will happen on the tax situation if Lonnie's parents give him their house as an inheritance.

QUESTION: Lonnie’s parents are going to give them a house and want to do it through an inheritance. They are not sure of the tax implications. Dave, however, is aware.

ANSWER: If the house they give you is worth $100,000, the federal government allows someone to die and leave in their estate $2 million without any estate taxes. An individual can only give another individual $12,000 before getting gift-taxed out the ear unless they claim it as part of their estate before they die. That $100,000 will count against the $2 million. That’s what the UETC does, it lets them use that $100,000 to keep from having to pay gift tax. If they don’t do this right, it could cost them $30,000 in taxes.

When they give you this house, your basis when you try to sell it is their old basis … what they paid for it will become what you paid for it, for tax purposes. If they paid $20,000 for it, and you sold it for $100,000, you would have an $80,000 gain today, and you would have taxes on $80,000. If you have owned it for 2 years as your personal residence, you can take up to $500,000 profit. As long as this house never goes above $520,000 in value before you sell it, and as long as you stay married, you won’t have any taxes. You won’t get burned on this.