Avoid Capital Gains Or Gift Tax On Real Estate Investment

Added January 19, 2009 by Ilyce R. Glink

Print Articles

Summary: What's the best way to pass a second home on to heirs? If you don't want to pay capital gains tax on a sale or a gift tax you should give your heirs an ownership share of the home gradually. If you give an amount of the real estate investment equal to the amount that's not subject to gift tax you can avoid gift tax. Right now you can give people up to $13,000 a year tax-free. That protects everyone from paying capital gains tax or gift tax on this real estate investment.

Q: I bought a second home to fix up and sell. I paid $46,000 and put $30,000 into it. Then, I decided not to sell the home but to rent it instead to my daughter and son-in-law. The house is worth $150,000 and I'm thinking of either selling or gifting it to them. For tax purposes which is the best way to do this?

A: The best thing to do is to give them the house to them over time. You can gift each of them $13,000 per year, or $26,000 per year total. You put $76,000 into the property, so that's roughly one-third of the value per year that you'd be giving them. If you have to give it to them at the current market value, you can give them one-sixth of the value each year for six years.

This way, you and they avoid gift taxes or creating a taxable event. Be sure to have a knowledgeable estate attorney or real estate attorney draft up the paperwork so you do it correctly and don't run afoul of IRS regulations.

Jan. 19, 2009.

See more articles on this topic by clicking on the "RELATED ARTICLES" above and to the right.

We have over 5000 articles on Real Estate Advice, Personal Finance Advice and Consumer Advice on our site. We encourage you to look at these articles. As always, if you have a comment on our articles, don't forget to post your comment below. We thank you for coming to ThinkGlink.com.

© Ilyce R. Glink. All rights reserved. This content may not be used, distributed, syndicated, compiled or excerpted in any medium or form without written authorization from Think Glink, Inc. For information on syndicating ThinkGlink.com please contact us.

Previous article Next article