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Transfer of house to son (special situation)

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What is the name of your state? Michigan
My mother has been given only months to live. She does not have a will and/or trust. She owns very little, with the equity in her house being the only thing of any value. She wants to leave the house to me and my brother 50/50. The choices as I see it are to either draw up a trust leaving the house to the 2 children, quitclaim deed the property to my brother and me now, or sell the house to us for the amount that she owes on the house (significantly less than market value). The trust seems like the smart way to go, but with the house being the only thing in her estate to be passed on, I'm not sure it's worth the $1000 to draw up the trust when she can either quitclaim or sell the house to us. The meat of my question is what would the tax implications be if we were to choose option 2 or 3? I'm not concerned about the potential gift taxes (or other penalties) to my mom (if she quitclaims or sells) since she will not be alive beyond a couple of months. I'm trying to understand what makes the most sense (from a $ standpoint) for us to take ownership of the house. I understand that if we quitclaim deed or buy the house our basis point for resale will be set at the value that she purchased the house at 20 years ago. Is this true? If so, obviously we would pay huge capital gains taxes. Are there any other negative tax implications that we should know of? I'm considering keeping the house myself and renting it out as an income property. If the basis point is the only negative implication to buying the house off of her at a significantly reduced price, I believe that this becomes a non issue. Is it not true that when I sell an income property, I pay no taxes so long as I use the funds to purchase a simlar property (another investment property)? That would elimnate the concern of my basis point on the house. Although, what implications would there be when I pay my brother off for his portion of the equity? Would I be hit with gift taxes? Perhaps she should sell to both of us, and then he can sell his portion to me? Please shed some light on what makes the most sense to transfer the house to me, and give my brother his share, without the tax implications. If the tax implications are more than a $1000, I'll just have a trust drawn up. Thanks for the help.


Senior Member
Your thinking is half-right. You understand that a gift now will affect your basis for sale, but you are underestimating the value of a basis step up. The basis at which you take the house is the basis you must use for depreciation purposes. You want to be able to depreciate the larger basis. This could save you hndreds of $$ each year. And it saves you capital gains when you eventually sell the place. Under no circumstances should you have your mother gift you the house now.

If you & your brother are the only heirs, you can just wait until she dies & inherit through intestate succession. If there are other potential heirs (surviving spouse, other kids) OR if probate fees are a factor, she needs to draw up a will or living trust to pass the house to your brother & you. Consult an estate attorney about the cost to draw up a living trust vs. probate fees (both court & attorney fees). It may be easiest to just do nothing.


Thanks for the advice. The point that you make regarding the depreciation of an income property is a great point. That would easily make it worth the $1000 to draw up a trust and inherit the house after her death. Regarding not having a trust and/or will, and waiting to inherit the house through intestate succession, I don't want to go that route. I am experiencing probate on my wife's side of the family. We're at 16 months and counting, and have yet to receive anything from her father's estate yet (and he had a will, but not a trust). The speed of probate, or lack of, makes it worth paying $1000 for a trust. And the lawyer fees are much more than the cost to draw up a trust. I will have a will and trust drawn up, and inherit the house after her death. Thanks for the help.

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