Giving the Gift of Real Estate? Keep an Eye on Tax Rules

southbaydigs

9 years ago

Instead of wasting money on Christmas presents no one uses, you may consider giving the gift of real estate. Although it may seem overly generous, if you are in a solid financial position, gifting a home may be a smart option. However, it is essential to keep tax rules in mind.

Purchasing a Home OutrightTo fill all preferences, it is recommended to choose a home after collaborating with the recipient. Instead of giving the house, accountants explain it is better to give money.When you give cash, you must remember two tax limits. Each year, you can give up to $14,000 tax-free. However, lifetime exemptions cannot exceed $5.45 million. Most individuals will never reach this limit, which means there are no tax implications, but the gifter must file a gift tax return.

Gift a Down Payment

Gifting cash for a down payment works in the same manner. However, this may cause problems during the mortgage process. Most times, it is necessary to submit a certified letter that explains the money is a gift.

Gift an Existing Home

Although your children may be interested in your family home, gifting it may not be smart. Down the road, when your children sell, they will have to pay expensive taxes.

If you still want to gift a home, there are other options:

Revocable Trust. This helps heirs avoid probate costs and allows you to gift your current home after you die.
Sell for a Low Price. The difference between your home’s value and the sale price follows your lifetime exemption, and the sale is tax-free.
Give Seller Financing. Instead of sending your children for a mortgage, you may consider offering seller financing.

When gifting a home, it is essential to watch your allowed exemptions. Besides these issues, it is a possible tax-free solution that helps family members retain a nice place to live.