Parent gifting home to child

[Jon Klaus]

In Texas, what's the most straight forward way for a parent to gift a home to an adult child? Home is free and clear.

[David Krulac]

Jon Klaus

One aspect that is often times over looked is the "stepped up basis". For a home gifted to a child, prior to the owner/parent's passing the basis of the parent becomes the basis of the child. For a property owned a very long time this could be a tremendous amount if the parent owned the property for say 50 years. The value/basis 50 years ago could be a relative pittance to the value today. For example a house sold 50 years ago for $25,000 could in some areas be worth $500,000 today. The child's basis in the property would be the same as the parents basis.

However, one of the biggest tax breaks in the code, at least in the top 3 favorable tax breaks is the "stepped up basis." Taking the same example of the $500,000 house, the basis of the child if the property is inherited, the owner parent has passed, would be the value on the date of death.

If the property was sold today in the first case above the tax would be on a gain of $500,000 minus $25,000 or $475,000 taxable gain.

If the property was sold today in the second case above the tax would ZERO.

The tax savings is excess of $100,000.

Big difference, my friend.