The Washington Post - USA (2021-10-23)

THE WASHINGTON POST

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SATURDAY, OCTOBER 23, 2021

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she can do what she wants with

the home (including selling it)

and would not need you to sign

anything. But in the event of her

death, she’d know that the home

would go to you.

For more information, you and

your mom might want to talk to

an estate planner or estate

attorney about setting up a living

trust.

If your mom wants to give you

cash, she can give you $15,000

per year with no tax implications.

If she wants to give you more, she

can give you significantly more,

but it will come out of her

lifetime gift tax exemption,

which is $11.7 million. For more

details on gift taxes, visit the

“frequently asked questions on

gift taxes” page at irs.gov.

Ilyce Glink is the author of “100

Questions Every First-Time Home

Buyer Should Ask” (Fourth Edition).

She is also the CEO of Best Money

Moves, an app that employers

provide to employees to measure and

dial down financial stress. Samuel J.

Tamkin is a Chicago-based real estate

attorney. Contact them through her

website, bestmoneymoves.com.

described. If you sold the home,

you wouldn’t pay tax on the share

you inherited from your mom at

the time of her death, but you’d

likely have to pay tax on your

share of the home. Your tax

would be based on the value of

your share when you obtained

ownership against the amount

you received when you sold it.

To use the same numbers as an

illustration: If your mom bought

the house for $100,000 and you

were co-owners, you would

inherit her half of the property at

the stepped-up basis of

$500,000. When you sold the

home, her half would be shielded

from taxes, but your profit would

be calculated based on the

difference between the purchase

and sales prices, or $400,000, of

which your share is $200,000.

You would likely owe taxes on the

$200,000 in profit rather than

not owing any tax at all.

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. While your mom is alive,

the property outright and then

sold it immediately, you’d receive

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.

You inherit a home worth

$500,000 and then sell it for

$500,000, which means there is

no profit because of what is

known as the stepped-up value of

the home assigned at the time of

your mom’s death. As an added

benefit, if your mom’s estate is

below the threshold for paying

estate taxes, your mom’s estate

wouldn’t pay taxes either.

Unfortunately, if you and she

own the home together and she

dies, you might have been equal

owners of the home. On her

death, you would inherit only

one-half the value of the home

(and would receive the stepped-

up basis for that half ) but would

not fully benefit from the

stepped-up basis that we

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

feel better knowing you were on

the title 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, this

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 this 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 past five years.

Now, if you own the home and

you die, your heirs inherit the

home at the home’s value at

around the time of your death.

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

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 past 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.

Would it be better for her to

take the total gains and then give

me what she wants at a l ater

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 understand

why she made a classic mistake

and why she might want to

unwind it.

First, it’s unclear to us what

problem your mother was trying

to solve by putting you on title to

Inheritance Advice

Instead of putting heir on deed, mom should c onsider living trust

Real

Estate

Matters

ILYCE GLINK

AND SAMUEL

J. TAMKIN

202.846.8032

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