receiving a house as a gift...

[Rene Bee]

Hello, 

My mom received a house through an inheritance last year.  She now wants to transfer that house to me as a gift.

What kind of  tax issues should I be concerned with in terms of receiving such a gift.  The house is in bad shape and we have gut renovated it but havent started the rehab yet.  Should I get it appraised before starting the gut?  What kind of professional should I speak to for advice. 

Thx!

[Michael Plaks]

@Rene Bee

Getting online tax "advice" from non-accountants who read random pieces of information without understanding the big picture is like getting any other advice online, for example Covid-related.

There're different kind of taxes involved here. One is estate tax, aka inheritance tax aka death tax: a tax on passing inheritance to the heirs AFTER death. Unless you or your mom are worth millions, it's not your problem.

The other is gift tax. This is a tax on passing something between two living persons, such as from your Mom to you. There is no actual tax to pay, but there is a very simple form to file out for her. What happens here is that your Mom will be eating into her post-death estate tax exemption which is, again, not her problem unless she is worth millions. The simple gift tax report is required but is very simple and can be DIY-ed.

Then there is income tax, and nobody addressed this critical issue. Once the house is transferred to you, you will become responsible for capital gain taxes on all future appreciation (increase in value) of this house. If the house remains under your Mom's name and you eventually receive it as your own inheritance - you will escape the tax on this appreciation. 

Then there's the benefit eligibility issue. If your Mom is low-income and low net worth and wants to be eligible for Medicaid/Medicare if she later needs, say, long-term care - she may not want to own this house under her name.

As you hopefully see, the decision on transferring the house to your name is not a simple one and requires considering many factors, including your plans for this house, such as how it is to be used. Besides, the timing of the transfer matters, too: immediately or after the rehab or at some later point.

What kind of specialists? Either tax accountants experienced in real estate or financial planners experienced in real estate.