Want to gift to our son

[Deleted]

As i understnd it, You and husband can each give 14k this year, so 28k. You can either gift rest next year, or file the gift tax return and take the excess against your lifetime xclusions this year.

[taxref]

I would recommend that you delay this plan.  

Unless your son returns to the US and wants or needs the place at that time,  updating your will to have your son inherit the property is the better course of action.  If you gift the property to him, your basis in the property becomes his basis.  If he inherits the property, his basis is the fair market value at the time of the inheritance.  As you know from the farm you were gifted by your mother, inheriting could save him a great deal of taxes when he sells the property.

That also avoids a sticky problem with the rental.  You basically plan to continue to rent out a property which you no longer own, which can result in a number of problems.  Some, if not all, of your expenses relating to the property would no longer be deductible for you, even though you continue to pay them. 

[mwcpa]

ref brings up good points...

"The proerty will continue to be rented and we will pay taxes and collect the rent."
If you gift it to him, this will be his income and all the costs will be his to bear.

"Just a little background, she claimed it at $25k"
You mean she paid 25K for it..... if it was worth 25K at the time it was gifted to you that may not be your cost basis, it may be lower......meaning more capital gains tax would be due.......

[thyme4change]

If you gift the property to him, your basis in the property becomes his basis.  If he inherits the property, his basis is the fair market value at the time of the inheritance.  

That's what I was thinking.  Any reason why you want him to own it now, as opposed to owning it after you die?[/span]

[Deleted]

I thought it was so he could still maintain residency in Texas after they move?

[mwcpa]

" thought it was so he could still maintain residency in Texas after they move?"

Sometimes the best intentions come with a stiff cost... like tax...
While the original poster may have really good intentions here it can be costly to the son and to them.  We are only trying to point out what our 535 elected officials (R, D, and I) in Congress drafted for us to deal with....

[Deleted]

If the son bought the property outright, what would happen?

[taxref]

If the son bought the property for fair market value (a critical point), the parents would have a capital gain or loss.  The son's basis would be what he paid for the property.  If the son rented out the property, he would report the rental income and expenses on his Schedule E.  Of course, that assumes the son actually pays the rental expenses.  If the parents continue to pay the rental expenses, no one gets to deduct them.

If the son purchased the property for less than FMV, the amount under FMV would have to be reported by the parents on a gift tax return.  If the parents sold the property for a loss, they could not claim the capital loss due to the related party loss rules.  That unclaimed loss would reduce the son's basis, so essentially the loss would help him when he sold the property.  Of course, that assumes the son doesn't sell it to another related party.

Its important to note that simply owning land in a state does not make one a resident of that state.  Should the son return to the US, his resident state will be the one in which he actually lives. 

[rangerj]

NOTE: Many states have a "home state" rule for active duty military and they can clAIM THEIR "HOME STATE" AS THEIR STATE OF RESIDENCE EVEN IF THEY DO NOT CURRENTLY LIVE IN THAT STATE. (SORRY i HIT the cap lock key). Also note that ALL U.S. Government property, including military bases, are U.S. Government "reservations" and NO state has any clAIM OF SOVERNTY, OR JURISDICTION, OVER SAID PROPERTY. (sHUTE i NEED A NEW KEYBOARD, ). gENERALLY CIVILIAN u.s. gOVERNMENT EMPLOYEES ARE NOT AFFORDED THE SAME COURTESY FOR STATE TAX PURPOSES.

[swamp]

Mar 3, 2013 1:08:25 GMT -5 @patstab said:

He uses our address in Texas as his home base, that is where his drivers license for the states issued from and everything.  He has not lived in the US for over 20 years.  I know about the FMV deal, hubby said sell it to him for $1 but you can't really do that.  The title company reports the sale and obviously its worth more then $1 and the relative part comes into play.  We had it in the will to gift to him but was trying to help him anchor himself here.

What a pain in the butt it is when you can't even do what you want with your property.

You can do whatever you want with it, there just a cost to each choice. 

[Deleted]

If pat sells the land to someone else, she still has to pay taxes on it. If son buys a different piece of land because he wants one there, his basis is still set at purchase price... ...

[mwcpa]

"What a pain in the butt it is when you can't even do what you want with your property."

You can do what you want, within the confines of the law....

But, with everything if you do A it comes with a cost B.... in this case Congress, many years ago, saw fit to not allow a few families to concentrate wealth, as was done in other places and was beginning to happen here, so they created the gift and estate tax regime.  Could you imagine if we did not have such regime.... how much would the Vanderbilts, the Morgans and other wealthy families created from the hard work of one generation control today..... (I do not mean to pick on those families, if it seems that way).... but imagine, a system free of cost, where the really wealthy could shift assets from generation A to B and C and on to D without a cost..... we could be in a fuedal system....where we work a serfs for the lord....

While our system is far from perfect, many laws are in place to keep a balance on things.... this is one of them.... fair or not, that is the $64,000 question....

[TheOtherMe]

Nobody ever said tax law was fair.  It is not fair.