How do you transfer ownership of a vacation house without incurring taxes?

[cghesler]

My Mom and I reside in Pa, but she owns half of a vacation house in NY state. My Uncle owns the other half. She would like to give her half to me, but her financial advisor told her she would incur thousands of dollars in taxes. Is there some way she can give me the property, or sell it to me for $1.00, and not incur any taxes? Can she add my name to the deed, so I can then be responsible for taxes and upkeep. Any suggestions would be appreciated.What is the name of your state (only U.S. law)?

 

[anteater]

If your mother gives you her ownership share, it is a gift to you. If the fair market value of her share is greater than $12,000, the amount over $12,000 is, in income tax-speak, a reportable gift and she is supposed to file Form 709. While the reportable gift is theoretically taxable, each person has a lifetime tax exclusion on reportable gifts of $1 million. However, using the gift tax exclusion does reduce the estate tax exclusion. You can read up on this in Publication 950:

http://www.irs.gov/pub/irs-pdf/p950.pdf

It is impossible to evaluate the "financial advisor's" statement since a lot depends upon your mother's overall financial situation. You and she would be better off consulting a tax professional. Many "financial advisors" don't have the foggiest idea concerning taxes and, frankly, should not be giving tax advice.

Is there some way she can give me the property, or sell it to me for $1.00, and not incur any taxes? Can she add my name to the deed, so I can then be responsible for taxes and upkeep.

Unless you pay fair market value for your mother's share, it is a gift (or partially a gift).

One possible downside to a gift is that your cost basis is the same as your mother's. If your mother gifts you her share and the property is sold at some point, you may owe higher capital gains taxes that if you inherited your mother's share.

 

[ShyCat]

No.

Any individual can gift up to $12,000 per year to any other individual. Any amount over that is subject to gift tax. The giver would be required to file a gift tax return, and pay taxes once the $1,000,000 exemption amount is used up. Gifted amounts also reduce the estate tax exemption amount.

Your mother would have to file a gift tax return for the value of her half share of the vacation home that she gives you (less $12,000). Whether or not she actually has to pay gift tax (up to 45%, if I remember correctly) depends on whether or not her $1,000,000 exemption amount has been used up.

If she sells her share for $1, it's the same thing. The difference between Fair Market Value (FMV) of her vacation home share and whatever you pay for it (i.e., $1) is considered a gift which would have to be reported on a gift tax return.

As a gift (which it is even if you pay $1), you would also receive your mother's cost basis, thus affecting the capital gains tax you would owe if you sell your share. Unlike inherited assets, there is no "step up basis" for gifted assets.

If you buy your mother's share for FMV, then no gift tax is involved, but your mother would owe capital gains tax on the difference between her cost basis and the sale price.

 

[PghREA]

Consult with a Certified Public Accountant whose primary focus is Taxation.

 

[HuAi]

Or she could just gift her share to you over a few years in $12,000 increments.