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Real Property by deed, gift or purchase

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L

linkpan

Guest
Iowa - My father owns 15 acres in Iowa with a small home and a couple of out buildings (no liens or mortgages involved). He has lived there for over 35 years. He rents part of the land seasonally for ag purposes (corn). There has likely been a significant increase in the value of the property, at least it has become the subject of several purchase offers for further development in the area. As things stand now, I will inherit the property under my father's will. I do not intend to sell the property, but plan to someday move back and reside there. I am concerned about tax consequences. We are considering whether a gift of the property now would be better, or whether I should simply purchase the property from him now and have him reserve a life estate. If I purchase it, are there any issues associated with what the purchase price should be? Can you help me assess what the potential tax and other legal consequences will be to me and to my father if we take any of these three routes?

Thank you.
 


L

loku

Guest
What you should do probably depends on the market value of the property.

There is a lifetime estate and gift tax exclusion that each person, or estate, has. The following gives the amount of the exclusion for estate tax purposes (notice the exclusion increases as years go by)

Year Exclusion
2002-2003 1,000,000
2004-2005 1,500,000
2006-2008 2,000,000
2009 3,000,000

For gift tax purposes, the applicable exclusion remains at $1,000,000 for all years after 2001.

So if the value of the estate is less than $1,000,000, there would be no tax on a gift of the property or on an inheritance of it. Therefore, if this is the case, it would probably be best to have him make a gift of the property to you and have him retain a life interest. There would be no tax on the gift (although a gift tax return would have to be filed), and since there would be no interest left in the estate when he dies, there will be no need of probate for it.

If the property is now, or soon to be worth more than $1,000,000, a good idea would be for him to execute a living trust, giving you the property upon his death. The property would be subject to estate tax (if it exceeds the exclusion), but it would not have to go through probate.
 

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