24 Sep My mom wants to give me her house. What’s the best way?
Q. My mother owns a house in New Jersey. There is no mortgage. She wants to transfer the house to me and my sister. Is it better to be a gift or a sale? I’m a U.S. citizen and my mother and sister are Turkish citizens.
A. It is very common for parents in later years to consider gifting their home or other real estate to their children during their lifetime.
There are, however, serious tax consequences that should be considered.
First, you should know that if you, as a U.S. citizen, receive a gift of money or other property from a foreign person, you may need to report these gifts on Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, said Anthony Vignier, a certified financial planner and attorney with Vignier Investment Group in Kearny.
He said Form 3520 is an information return – not a tax return – but there are significant penalties for not filing it, Vignier said.
On whether a gift or a sale is better off for you and your mother, consider this.
The children keep the parent’s cost basis on lifetime transfers of property made by the parents, Vignier said.
“What this means is that if the property was purchased for $100,000 and it now has a current market value of $250,000, the cost basis of $100,000 becomes the child’s cost Basis,” Vignier said. “When you sell the property, the capital gains tax on the difference between the sale price and the cost basis – $150,000 – would have to be paid.”
On the other hand, if you inherit the property, you get a “step up” in the cost basis.
“So if at the parent’s death, the property is worth $250,000 and it is sold by the child for that amount, there is no gain to pay a capital gains tax on,” he said.
Your best bet is to speak to an estate planning attorney to assist your family with some planning strategies.
Email your questions to moc.p1606485930leHye1606485930noMJN1606485930@ksA1606485930.
This story was originally published on Sept. 24, 2019.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.