Q: Ilyce, I believe the dollar amount is $12,000 that a parent can give a child annually (tax free). If the parent chooses to give the child 20 acres of land, is he free to price the land at $600 per acre, in order to avoid going over this amount?
A: The amount that one individual can give to another without triggering the gift tax in 2009 is $13,000. The IRS website has a section on frequently asked questions on this topic. You can search the words “gift tax.”
The bigger question is the pricing of the parcel of land. If you owned the Mona Lisa, could you give it a value of $13,000 so that you could give it to your children and avoid the gift tax? I don’t think the IRS would look very kindly on that.
In the same way, you may have to provide an appraisal or other valuation that would be acceptable to the IRS for the property in case the IRS audits you or looks into the gift of land.
If property is valued in the neighborhood from between $500 to $1000 per acre, you may be able to price the property at $600 per acre. But if land in the area is selling for $10,000 per acre, it would be suspect to price it at $600, because it would look to the IRS as though you were trying to give away something at a greater value.
The question you have to answer is what is your intent with the gift? Why do you want to give the gift? Are you trying to do some cheap estate planning? If you want to give your child a parcel of land on which to build a house, you can structure the gift over time to allow you to fit within the $13,000 yearly limit. If you are hoping to divest your estate of assets, there are far better ways of gifting this land, including flat-out inheriting it or using one of several kinds of trusts.
You may wish to spend some time with a qualified estate planning attorney who can help you figure out what your bottom line intentions are with the gift and will help you make the gift (if that’s what the best solution is) to conform with IRS rules.
You’re better off getting some estate planning in the works than making things worse for yourself by trying to gift the property to your child only to find out that you might have some capital gains issues and other IRS tax issues.