Q: My father wants to quitclaim deed his house to me before he dies, rather than include it in his will. Is this a good idea?
A: Dear Interested:
While transferring ownership of real estate through a quitclaim deed is simple, the tax burden you’ll likely face makes it a potentially terrible idea. If the property is transferred to you via quitclaim, and you later sell it, you’ll have to pay capital gains taxes on the difference between the home’s value when your father bought it and the price you sell it for.
If your father owned the house for a long time, it’s probably gone up significantly in value from the time he bought it. If so, you could be looking at an astronomical tax bill.
If he transfers the home to you at the time of his death through his will, however, you’ll qualify for what’s called a “step-up in basis.” This allows you to pay taxes based only on the difference between the value of the home at the time you inherited it and what you sell it for, as opposed to paying taxes based on the home’s value at the time your dad bought it. This is likely to dramatically reduce the taxes you owe upon sale of the property.
A Personal Family Lawyer®, can help you choose the most advantageous estate planning strategy to ensure you face the lowest tax liability possible on every asset you inherit.