Best way to transfer free & clear land from Parents

[James Perez]

Hi all,

I'm posting this in off topic because it's not specifically about investing but it is about real estate.

My parents have about 3 acres of a 23 acre property they want to give to me. They own the land free & clear, as it was inherited about 20 years ago. My question is, can they just gift this land to me and, if so, what are the tax implications if they do that? Or, should we transfer it as a sale, for let's say $1, and what are the plus/minuses for doing it that way?

Not exactly sure what the land is worth, probably around $15K-$20k per acre. So I figured this would exceed the $13,000 (i think) gift limit.

Any input would be appreciated (no pun intended).

[Dave Toelkes]

Gifts are made at the giver's cost basis. Since your parents inherited the land, their cost basis is the market value of the land at the time they inherited it. After the gift is made, your basis will be whatever their basis was at the time of the gift.

For example, if the land value was $500 per acre at the time they inherited, and they are giving you three acres, then your basis in the land will be $1500. If you decide to sell the land at a later date, your taxable long term capital gain will be the difference between your net sale proceeds and your cost basis. If you are looking for a way to minimize any tax impact, it is better to receive the land by inheritance rather than by gift. When you inherit, your basis becomes the FMV of the land at the time of inheritance.

Have this conversation with your parents and their estate planning attorney.