Is it wise to add children's names on a real-estate property for tax reasons?

Hello,


My dad owns a real-estate property in California. He asked me if it's a good idea to add me on his property in case something happens to him. I told him it might be wise to find out the tax ramifications (or any other ramifications for that matter). Anyone knows or knows where I can find out more info?





Thanks,





M

Is it wise to add children's names on a real-estate property for tax reasons?
Depending on the circumstances, it is not always a good idea to add adult childrens' names onto real-estate property - here are the pro's and con's:





Pro - Easy inter-family transfer, when parents pass on, the child does not need to wait for the property to pass through probate. (This issue can be avoided also by setting up a revocable living trust.)





Pro - No need to file a "Gift Tax" tax return. Gift tax returns must be filed when a taxpayer makes a gift of $12,000 or more in one year ($24,000 or more when given by a married couple.) As another poster mentioned, that is simply a report, tax isn't triggered until the total gifts add up to $2 million.





Con - And this is a big one: No stepped up basis! Generally, people pay Capital Gains tax when they sell their homes. There's an exemption of $250,000 per taxpayer. So, if someone buys a home for $100,000 and sells it for $400,000 - the difference is $300,000. They get to exempt $250,000 and pay capital gains tax on $50,000.





Now, if your parents die and you inherit the property, you get a new basis of the value of the home at the time your parents die. So, lets say mom buys a house in 1970 for $50,000. She dies in 2010 when the house is worth $450,000. I sell the house in 2015 for $600,000.





If my mother put my name on the house - I inherit her basis - meaning I have a gain of $600,000 - $50,000 = $550,000 gain! EEK! After my $250k exemption, I pay tax on $300,000!





However, if I inherit the house, my gain is only $600,000 - $450,000 = $150,000 gain. All is exempted under my $250,000 exemption and I pay no tax!





So, as you can see.. if you are expecting a gain of more than $250,000 on the house when you sell it, its better to inherit than to transfer it within the family.
Reply:If you dad put your name on the property, it may be treated as gift. He may have to file gift tax return. There is life long exemption of 1 million on gifts. Read more about gift tax http://taxipay.blogspot.com/2008/03/us-g...





If your dad puts your name on the will, then there is no tax on inheritances.


There may be estate tax if estate is more than a limit (2 million for 2008 and 3 million for 2009). For more information on inheritance taxation read: http://taxipay.blogspot.com/2008/02/tax-...
Reply:Never. The adjusted cost basis is reason enuf to leave him on it alone. Unless it hasn't gone up in value at all since he bought it..