The property market is currently enjoying a significant boom. Virtually everyone is itching to own a piece of real estate. Unfortunately, only a few have the financial muscle to make their dream a reality. The older generation holds most of the property. Since you have worked hard through life to guarantee your kids’ financial security, passing on the property you own to them is among the best ways to ensure they are in good economic standing now.
Most parents assume that they can only pass property to their kids after their death. A Denver CO-based family attorney will, however, guide you on the available alternatives for transferring property to your kids during your lifetime. Moreover, several options exist for those looking for ways to minimize the tax impact of their transfer to them and their kids. Here are the tax-free avenues for the transfer of property to your kids.
Leaving It in a Will
There is a legal limit for the transfer of property in a will without incurring taxes. As of 2017, this limit was $5.49 million. If your estate is valued below this amount, you are not taxed for its transfer to your kids. Moreover, when your kids get the property, their capital gains tax in case they choose to sell it is reduced. The capital gains tax is based on the difference between a property’s selling and original prices. When kids inherit property, capital tax is based on the prevailing rather than the original price of the property. Even so, some states impose a state tax for the property transferred in a will.
The gifting of property to someone apart from your spouse is taxed if it is worth more than $14 000 annually. Even so, you are allowed to gift property valued at less than $5.49 million in your life without getting taxed. If you want to gift real estate to your kids and it is below $5.49 million in value, you can do so without paying gift tax though you will still file the gift tax form. Gifting your property, however, opens your kids up to the payment of high capital gains tax if they sell the property.
You can sell your property to your children. Even so, if you sell the property below its market value, the difference between the selling price and fair market value will be regarded as a gift. When you sell the house for its fair market value, you can claim gift tax exemption on the interest your kids will make towards the property’s purchase annually.
Putting In a Trust
You can transfer property into an irrevocable trust then name your kids as beneficiaries. With this alternative, the property is not in your estate after your demise. This means your heirs will not incur taxes on its transfer. You, however, need to be sure of the beneficiaries since the property transfer cannot be revoked.
The above alternatives are not one-size-fits-all. They are tweaked by attorney’s to correspond to specific circumstances. As such, what works for one person might incur taxes in your case, even if you live in the same state.