Ask The Expert: I’d like to give my son my house now, can I do that instead of waiting until I pass?

posted by: Alexis Martin Neely Personal Family Lawyer

In most cases, I would not recommend that you give your house to your child while you are still living. There are a few reasons for this.

First, if you give your son your house while you are living, you would lose an extremely valuable tax benefit, called a “step-up in basis”, which would erase any untaxed capital gains at the time of your death. Let me explain. Your “basis” is the amount of money that you paid for your property plus any improvements made on the property. Let’s assume this number is $50,000. If your property has grown in value between the time of purchase and the time of its sale, you would pay capital gains tax on the difference between the “basis” and the sale price.

To illustrate, let’s use your basis of $50,000 and assume your property is worth $500,000 today. That means you have $450,000 of untaxed capital gains that would be subject to tax at the time you sold your property. If you were to give your property to your son now, he would keep your $50,000 basis, and when he sold the property, he would have to pay the capital gains tax, just like you would. However, if you hold onto the property and pass it to him at the time of your death, the government gives your family a gift called a “step-up in basis”, which means that your son would own the property with a new basis equal to the value of the property at the time of your death. That means that if he was to sell the property at that point, he would not have to pay any capital gains tax at all.

So, with the numbers we used in our illustration $50,000 basis and fair market value of property of $500,000 – waiting to give your son the property at the time of your death, instead of now, would save your family $67,500 in federal capital gains tax alone.

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