07 Mar Will my veteran son save property taxes if I give him my home?

Q. I own my home in New Jersey and pay over $20,000 per year in property taxes. My son lives with me and is a 100% disabled veteran. We’ve learned that he would get a full tax exemption if he owned the home. He will be getting 50% of it anyway when I die, splitting it with his sister. My question is what is the best way to take advantage of his exemption eligibility? If I simply add him as a co-owner, would that provide us with the entire exemption — and then I could leave my half of the house to his sister in my will? Or is there a better way to take advantage of his exemption while not causing any negative tax consequences now or later, and where each of my two children will end up with 50% of the house when I’m gone?
— Parent

A. There’s a lot to unpack with your question.

We get that you want to lower your property taxes, there are a few bigger issues to go over first.

Beyond the property tax savings, consider whether you want your son to own 100% of the home, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.

“If this route were pursued, this asset would no longer be part of your estate when you pass, meaning your daughter would receive zero value from the home’s value,” Maye said. “This may be perfectly fine but something to consider particularly is the impact on family relations.”

Also, whether your son was given 50% or 100% ownership, a gift tax return would need to be filed, Maye said.

“For most people, given the current federal estate tax exemption of $13.61 million, this is more of a housekeeping item,” he said. “The fair market value of the house given to the son above the $18,000 annual gift exclusion amount would need to be reported on a gift tax return.”

Your federal estate exemption would be reduced by the amount of the gift to your son, Maye said, noting no gift taxes would be owed until you had used up all of your estate tax exemption of $13.61 million.

Another point to consider is that your son will step into your cost basis for the home if you gift the home all or even a portion of the home, Maye said.

This matters because down the road, if your son was to sell the home, he might be subject to a higher tax bill than if he had inherited the home when you pass away, Maye said.

“When someone inherits a home, their cost basis is stepped up to the fair market value of the property at the date of death of the original owner,” Maye said. “Once again, not a deal breaker in and of itself, but another planning point to consider depending on a variety of factors.”

To your specific question:

Maye said honorably discharged veterans who are 100% disabled during active-duty service may qualify for an exemption.

“The other main requirements include being a legal resident of New Jersey and the qualifying veteran must be the owner or partial owner and occupy the New Jersey property as their primary residence,” Maye said.

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This story was originally published in March 2024.

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.