Tax Implications / Transfer of Property / Gift Tax

[xudipo]

I Live in California

The property in this question is in Hawaii

My Mother has two properties in Hawaii.

Property 1. Is Free and Clear, is worth about $250K and she whats to transfer title to myself and my wife. What is the potential tax implications that I could Incurr?

Also, this property is used to pay for the mortgage on Property 2, which has a rential income (which can be verified).



Property 2. Has a loan on the property, and is worth about conservatively about $350K The mortgage is about $50K, and is used as my mothers primary residence. The mortgage is being paid from the rental property of Property 1. She wants us to take a loan out to pay off the existing mortage, transfer the title (remove her name) etc and have only my wife and I on the loan and title.

Can anyone help with suggestions of tax implications, and whom should I refer this question to? I need help.

In addition, we want to place these two properties into a Living Trust, as they have benefectors who benefit from her death

She really has no other assets, and she has no other tax shelters to help relief her from anything that could potential be a benefit (tax wise)

 

[abezon]

It is a terrible idea to gift someone property that was a rental. If she gives you the property now, you get it with *her* existing basis. When you sell, you have to recapture all the depreciation she has claimed over the years. If you inherit the property, your basis is the property's fair market value on the day she dies. This could save you from paying taxes on $200,000 of gains.

You need to see an estate planner. I suspect a living trust or an irrevocable trust is the way to go. This way you get the property with a basis step-up when she dies, & she continues to get the rental income until then. If will contesting is a potential problem, an estate planner can work around this with no contest clauses or by other means. She should have this done now.