Q: My mother-in-law did a transfer on death for her home that she owned and lived in with her two adult sons. One son is my
Husband. He lived there taking care of her and working from home part of time and at our home in Arkansas. MIL left house with TOD in my husband's name only because his brother had so many school loans and she didn't want "the big man" getting on his part. Apparently there is a home equity loan of $15,000 on the house also. If the house sells for $200,000 and my husband wants to give his brother half, won't we have to pay an estate tax on anything over the gift amount of $17,000 since his brother's name isn't on the deed. Additionally, will the bank take the $15,000 owned on loan? Other than Mississippi state tax will we have to pay capital gains? How do we find out how much tax we will owe?
A: When your husband sells the home, the home equity line of credit will need to be paid off in order to pass free and clear title to the buyer. Yes, the gift of half of the proceeds to your husband's brother would be a taxable gift to the extent in excess of $17,000. However, there is a lifetime exemption from gift tax of over $12 million. If your husband's lifetime gifts total up to less than $12 million he will have no gift tax to pay. The house will get a step up in basis to fair market value as of MIL's date of death. Capital gains tax would be owed only if sale price net of selling expenses is more than date of death value. You will need to hire a CPA to help you prepare MIL's final estate and income tax returns.
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