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Point of inteest...how do you come up with the $50K value of the 5 acres? |
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The $50k is based on area comps. Vacant land is common in these parts. |
He is married?
You and your wife each essentially own a 50% interest in the entire 25 acres. Wife would convey to son 50% 0f her 50% interest in the 5 acres ( in other words 25%). You would do the same. So son is getting 50% interest of the five acres. You would do the same thing to his wife. So she has 50% (25% from your wife to her, 25% from you). So it ends up your son owns 50% of the 5 acres as does his wife. Not 100 % of 2 1/2 acres but 50% of the whole 5 acres. It would be of a single 5 acre tract. So no you don't have to break it into 4 separate tracts. They would likely have to prepare a deed to each other consolodating although in some states by operation of law it is consolodated. Kinda confusing but not really when all the dust settles. |
I read the four deeds is to ensure that the gift is under the reporting limit. This only works if the gift givers (parents) jointly own the property and the gift receiver is married. The four gifts are one each from mother and father to son (2) and one each from mother and father to daughter-in-law (2) for a total of four.
A tax advisor will be able to tell you what documentation you should have to support that the gift is under the gift limit. I believe Nickolas Cage was recently caught in a gift tax problem when he gave gifts to a production crew. |
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Somewhere in the back of my mind there may have been an IRS ruling that allowed parents to make gifts like this with only two deeds (one from you and wife to son and one to his wife) biut I'm not sure. Your accountant will know.
Anyway...not as complicated a teransaction as it sounds. |
As usual, Dueller is offering sound advice. I'd contact an attorney and make sure it's done properly for your state and documented "correctly" at the Registrar of Deeds in the appropriate county. Just went through this buying out two relatives for my grandparents' estate and where I lived as a small lad. I now "own" part of my own fishin' hole :)!
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It certainly goes without saying I'm only trying to give general advice/information online. There are nuances and idiosyncrasies that occur from state to state. I may have stayed at a holiday Inn Express last year, but you should aolways consult your own attorney or CPA and not rely solely on my "advice ." |
Just a point of clairification-there is no federal "gift tax". You are required to file a return on gifts of greater than 14k, but only because these count against the federal estate tax exclusion (the amount of your estate not subject to federal tax) which is now 5 million dollars (thank you Fiscal cliff!). You file the return only so you are on record w/ the IRS of having made the gift, no current tax.
So, if your estate including the property is likely worth less than 5 mil, you can gift however you like without worrying about federal taxation. |
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Excellent point, Greg. I was hesitant to point that out because of the common misconception about exactly what a "gift tax retirn" conjures up in most peoples' mindset. Didn't want to cloud lendaddy's query with that maelstrom. Let's pray that we don't go back to the $600K threshhold in pre-Bush laws! |
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yea but wouldn't they have to pay estate for the property on execution of the will?
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Granted donee wil take the donor's basis but in this situation the donee (Lendaddy's son) needs to own the property(freehold) to use as collateral for constuction loan. Since it will be residential I doubt it will ever become an isssue if he divests later. Don't make it more complicated than it is. |
For federal purposes, no, unless the estate's total value exceeds 5 million (under current law). For state purposes, yes.
As far as the basis goes, if they receive it as a gift they will receive the donor's basis (ie one fifth of the total basis in the question presented). Where the basis step up is very useful is for fully depreciated rental properties, where the basis may be zero, but the actual value is in the hundreds of thousands or more. Dueller and I posted at the same time, glad to see we agree. |
Another consideration....A friend cut out acreage in the middle of his farm for his son and new bride. They built a house. Soon afterward they had an ugly divorce. The wife got the house and land. She lives with her new man right next to his mom and dad (that hate her guts) in the best piece of land on the family farm that their son will someday inherit (the remainder). The farm their family owned since the Revolutionary War. They never dreamed their son would divorce or the land would ever leave the family. There are also issues of access to family property on the other side of the cut out piece, etc. I think the wife had a restraining order for a while that covered enough distance that he could not even visit his parents without risk.
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Fint, you make some excellent points regarding breaking up parcels and particularly "right of egress" easements...do so with caution as I have learned recently, but now all is well. My mom's side "family farm" was granted from the King (pre R. war), and dad's side has owned "the farm" for a hundred years or more...it can be "messy" and a trek through family history to figure it all out :)
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I appreciate the concern and can see where those matters should cause pause for most. This is not a situation where those matters will come into play. Absolutely as close to zero likelihood of a breakup as is possible. But again I appreciate the points, they are valid.
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PM'd ya LD
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