What are the costs and taxes to transfer a house to my child?
The costs associated with a transfer of ownership will vary depending on the state and how the transfer is made. Filing a deed yourself may be the cheapest method, but it will take a bit of work to ensure that you have filled out and correctly filled out the correct paperwork.
Online legal documentation centers, such as LegalZoom, offer deed transfer services for around $ 250, plus filing fees. These services typically include searching for titles, creating the real estate deed, and filing the deed with the county registrar’s office. You can also hire a real estate attorney to carry out the transfer of the deed. It may be the more expensive option, but it may also be the least stressful since you will be sure that the transfer was executed properly.
Key points to remember
- Filing a deed yourself can be inexpensive but requires being informed.
- Hiring a lawyer can be expensive, but it can also be less stressful.
- Transferring a property could cost more than leaving it as an inheritance.
Costs of tax consequences
The tax consequences of selling a property to a child can end up costing them more than if they were to inherit the property later. Suppose you bought your house years ago for $ 50,000. Over the years, you have invested $ 20,000 in the house. It has a current market value of $ 250,000. Since you transferred the house to your child while you were still alive, your base cost, which would be $ 70,000, becomes that of your child.
If your child sells the house, he will owe capital gains taxes on the difference between the sale price and the base price, which would be $ 180,000. At a capital gains rate of 15%, that would equate to $ 27,000 in taxes. The tax rate would be higher if you owned the house for less than a year, at which point the profit would be taxed as ordinary income.
If your child moves in and lives in the property for at least two out of five years before selling it, up to $ 250,000 in profit may be excluded, and $ 500,000 may be excluded if filed jointly with a spouse. Your child will need to use your cost base of $ 70,000, which includes the purchase price of $ 50,000, plus the $ 20,000 improvement fee.
When a parent transfers title to the house to a child without receiving a valid consideration, it is considered a gift. Donations exceeding the annual exclusion rate must be reported to the IRS and the donor will be subject to donation taxes.????
Transfer title or inherit
If your child inherits the property on your death instead of you transferring the deed to them, the child will receive the grossed-up basis, where the value of the property on the date of your death becomes the child’s basis. So, if the property has a market value of $ 250,000 at the time of your death, your child could sell the house for $ 250,000 and not be liable for capital gains tax.
It was suggested that the increased ground rule could be changed in the future.As tax rules change, it is important to consult a qualified tax professional before making any decision.