tax consequences on gifted investment real estate:

Forum|Forum|1 year ago
January 28, 2025
4 replies
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wish to give Investmnet real estate i have ownes for a long time to my daughter. I do not wish to wait until death

Investment real estate ..basis $150,000 FMV $600,000. has a non recourse mortgage of $300,000 what are the tax implications of gifting this to my child with the mortgage in place.

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VolvoGirl

Employee

The mortgage doesn’t factor into it. If you give a gift they get the same cost basis as you. If they inherit it they will get a step up in value on the date of death. Better think about it. And see a financial planner.

ThomasM125

While the lifetime federal gift tax exemption is $13.61 million dollars, the annual exemption if $18,000. So, you should file a gift tax return if you make the gift, even though it won't be taxable until your lifetime gifts exceed $13.61 million.

As mentioned by @VolvoGirl if you allowed your daughter to inherit the property, she would have a basis equal to the fair market value on the date or your demise, as opposed to your basis of $150,000 if you gifted it now. So from a tax stand point it would be better not to gift it to her, but let her inherit it.

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annieland

Employee

Really, REALLY bad idea. My only saving grace in inheriting rental property I just sold was the step-up in basis which gave me minimal gains, but after a LOT of depreciation recapture and passive losses. If I had to deal with a cost basis from 1982 I'd be wiped out.

And as an aside, becoming a landlord because someone else wanted to be a landlord isn't all roses if the recipient isn't interested in the job. Things happen, of course... but it's a lot easier to inherit a trust or IRA or even family home than someone's investment property. In addition to talking to a financial planner and/or learning about the effect of step-up in basis, have a talk with your daughter about her wishes as well so everyone can make a well-informed decision.

AmeliesUncle

@tomwilloughbyestate wrote:
mortgage of $300,000

gifting this to my child with the mortgage in place.

What is happening to the $300,000 mortgage? Are you paying it off? Is your daughter assuming (taking over) the mortgage (and if so, is the mortgage company okay with it being transferred to her)? Something else?

tomwilloughbyestateAuthor

Yes my daughter is assuming the mortgage with the banks permission.

AmeliesUncle

That means you are essentially selling it for $300,000.

If the Basis is $150,000, that means you will have a $150,000 taxable gain from the sale. How that $150,000 taxable gain will affect your tax return will depend on the rest of your circumstances (amount and kind of other income, which state you live in, which state the property is in, and much more).

You also referred to it as "investment" real estate. In the event it was rental property, some of that gain will be taxed at a higher rate due to the depreciation you were able to claim.

As was noted by others, you will need to file a Gift Tax return reporting the $300,000 gift.

Your daughter's Basis will be $300,000 so whenever she sells, she will have a large gain (hypothetically, if she sold it immediately for $600,000, she would have a $300,000 taxable gain). But if she is making that home her Principal Residence, that has special rules that could reduce (or possibly eliminate) the taxable gain if/when she sells.