Q: Can my husband and I give our son a house that we own. Do we just sign the deed over to him without tax problems?
A: You can sign over your house to your son, however, I would look into doing it in a few ways. If you sign the deed over to your son this can be considered a gift. You as individuals are allowed to give a gift in the amount of $14,000 each to anybody throughout the year tax-free. So you and your husband could give up to $14,000 each (a total of $28,000) of value in the house before ever having to file with the IRS for the transaction. But assuming the equity in the house is greater than $14,000, you will need to file a form 709 with the IRS to show the excess amount above the $14,000 that was gifted to him. How this essentially works is you can give away up to $11.2 million, starting in 2018 without paying any tax on it when you pass away. Because you have not passed away, you can still begin to dip in to that exemption amount prior to your passing. When you file the form 709, it will essentially tell the IRS that you have already begun to distribute your estate and they will cut in to the $11.2 million that you are allowed at death. However, if you gift your son the house today, he will take the house at the value that you hold the asset in your hands today. So if you own the house with a basis of $100,000, he will take the house at a value of $100,000 whether it is worth more than that amount or not. If you pass the house to your son at death through a trust, he will get a step-up in basis and be able to take the house at the higher value if it were appraised for $200,000 at that time. Why this is important is because if he were to sell the house under the first scenario, he would have a $100,000 capital gain assuming he didn't qualify for the personal residence exemption. Under the second scenario, he would have no gain because his basis got stepped up. If you have further questions feel free to contact me for support.
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