mother gifting house to son......

[bucket]

What is the name of your state? Oregon

My husband and I have an understanding with his mother, that apon paying off the house (it's in her name) and we have been living in it for 13 years now. She would put it into our names.....she says now that if she did this she would have to pay a tax on it? and that we would as well.
Need to know if this is correct? and if so....what do we need to do to accomplish this.

She is willing to do this as we signed a paper she wrote up.stating this. Now is afraid of any taxes she/we might owe...

thank you:

[LdiJ]

Originally Posted by bucket

What is the name of your state? Oregon

My husband and I have an understanding with his mother, that apon paying off the house (it's in her name) and we have been living in it for 13 years now. She would put it into our names.....she says now that if she did this she would have to pay a tax on it? and that we would as well.
Need to know if this is correct? and if so....what do we need to do to accomplish this.

She is willing to do this as we signed a paper she wrote up.stating this. Now is afraid of any taxes she/we might owe...

thank you:

In a way she is right (at least to be concerned), in a way she is wrong.

She would have to file a gift tax return. That doesn't mean that she would necessarily have to pay taxes however. As long as she has not exceeded her lifetime exclusion for gifting (at least 1 million) there would be no actual tax due.

On your side of the picture however, there could be a tax disadvantage for her to gift you the house rather than your husband inheriting it.

If its gifted to your husband (or you and your husband) then you retain her "basis". That means that if you sell the house your capital gains are the difference between mom's original purchase price plus improvements and the price for which its sold. (if you sell it).

However, if your husband inherits the home, then his basis is the fair market value of the home as of the date of mom's death. If the home has been in the family for a very long time, that can make a HUGE difference. You and your husband have a combined 500k capital gains exclusion, however, therefore if the value of the house isn't high enough to trigger capital gains in excess of your combined 500k exclusion, then that may not be an issue.

So...if the house is worth more than 1 million, or mom has made significant gifts in the past, then mom could be looking at some gift tax.

If mom and dad paid 100k for the house 50 years ago, and its worth 750k now, you and your husband could also be looking at some capital gains tax should you choose to sell the property....whereas you would likely have none if he inherited it.