Q:I want my child to own my house when I die. Should I just transfer it now?
- Pondering Parent
A: Dear, Pondering:
One thing to consider when transferring ownership of your home is the potential tax liability for your child. You may have owned your house for a long time, and its value has dramatically increased, leading you to believe that by transferring it to your child, he or she can make a big profit by selling it.
Unfortunately, if you do that, she or he will have to pay capital gains tax on the difference between your home’s value when you purchased it and your home’s selling price at the time it’s sold by your child.Depending on the home’s value, these taxes can be astronomical.
In contrast, by transferring your home at the time of your death, your child will receive what’s known as a “step-up in basis.” It’s one of the only benefits of death, and it allows your child to pay capital gains taxes when he or she sells your home, based only on the difference between the value of the home at the time of inheritance and its sales price, rather than paying taxes based on the home’s value at the time you bought it.
A Personal Family Lawyer® can help you find the best way to transfer your home, while also minimizing your beneficiaries’ tax liability. Contact one today to learn more.