Real Time Web Analytics

Saturday, February 25, 2012

Taxwise, is giving my parents my home a good idea?

I'd like to answer another reader question about homes and capital gains tax. I answer these as blog posts in the hopes that many of you will see a situation similar to your own and will be able to use the information for yourself.

Here's the question:

I have a house by myself and my brother has one with our parents. I am planning to move away and would like to leave my house to them. Do I need to just sign the title over or sell it to them? And do I need to pay the taxes here when I leave, and how much?

When people talk to me about this kind of question, the first thing I notice is that they've already made up their minds that they are going ahead with the transaction in mind. They aren't asking whether they should do it; they are asking how to do it. As I've said a hundred times before, in law the question is never "can I do this?"; the right question is "should I do this?". I'll talk about the issues this reader has raised, because that's what they want, but if it were me, I'd sit down with an accountant and ask about future tax consequences for my brother and parents before assuming giving them my house is a good thing.

When you ask about signing over the title versus selling it to them, I'm interpreting that as meaning selling at fair market value. You can set the selling price at whatever you want, even if that price is $1. Before you go ahead though, make sure you understand the long-term consequences of the transaction.

There is no tax when you sell your house because it is (as far as I can tell) your principal residence. Everyone is entitled to own one - and only one - principal residence.

Why have you decided to give your family members your home instead of selling it and giving them the money? Is someone, maybe your brother, going to live in it? Think about this carefully before you go ahead and, as I said, perhaps talk to an accountant about their future tax situation. If your parents and brother already have a principal residence and you give them another house, when they sell the house they DO have to pay capital gains tax on the increase in value. So are you doing them any favours by giving them a house?

I'm glad you're asking questions before going ahead.  But please make sure you broaden the question enough to get all of the facts you need.

No comments:

Post a Comment

You might also like

Related Posts with Thumbnails