what's the law?

If a living parent transfers $1,000,000 in real estate and stocks to a child today, will the parent owe gift taxes on the difference between that and $675,000 tomorrow?

Will it be appx. 40%?

Will the law change in 1/1/02?

Thanks in advance.

#1 - Yes, less another $10,000 for the annual exclusion.

#2 - The gift tax would be $121,350, almost 40% of the amount that is subject to tax

#3 - The exemption amount rises to $1 million. Therefore, he could gift $685,000 this year and pay no tax, and then gift the remaining $315,000 (or $335,000) and still pay no tax.

Thanx for that info illinoisestateplan.


Here's one more - if you don't mind. How is the value on real estate determined for gift tax purposes. Does it matter down the line if a child sells property for much more than declared on gift tax return?



Thanx again.

To reduce the chance of audit, you should get a fair market value appraisal of the property by a qualified appraiser. The IRS is always free to challenge a valuation on a gift tax return. Assuming no fraud, there is a statute of limitations on such a challeneg, which offhand I believe is 3 years, though don't quote me on that. It is perfectly natural for a house to sell for much higher in the future than what its value is today. However, a word of warning...gifted property retains a carryover basis for tax purposes, so your parent's original basis would be your basis. On the other hand, property passing from a decedent gets a stepped up basis (under current law) equal to the FMV on the date of death.

Hi illinoisestateplan.com

Sorry for jumping in here, this question is similar to the one i wanted to ask, although slightly different. I hope Link doesn't mind.


My mother owns approx. 80% of the home (approx. 100K) that she lives in. The bank owns the rest (my mother still paying mortage). She wanted to give her 4 adult children the house. That would be 25K each. This is NOT a cash value, but the real estate value. In other words, the four of us each own 25% of that home.

Here is the situation:

She will continue to live there
She will continue to pay the mortage (she has only 2 or more years to pay it off)
After the transfer/split, she no longer legally own the house, but the four of us are. But no one is able to sell it unless she said so or 3 out of 4 agree to sell it.


The question:

1) Is this real estate value that her children get will be taxed as gift tax? or it falls under estate tax?

2) What is the procedure to do the split/transfer? is a Lawyer needed in this process ?