My mother would like to gift her home to her children. What are the tax issues involved with gifting real estate?

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A gift of a home has significant tax issues which need to be discussed.

The biggest concern is whether the children who receive the home will have to pay income taxes on the receipt of the gift.  The answer is no.  Receipt of a gift is not taxable income.

However, your mother will have to file a federal gift tax return by April 15 of the following year for the amount of the gift exceeding $14,000 per person (2013).  The form is IRS number 709.  As long as the total gifts your mother has made over her life do not exceed the federal estate tax threshold, $5.25 million for 2013, there will be no tax.  The tax return informs the IRS of the large gift and is designed to catch the very affluent.  There is no Oregon gift tax filing requirement.

Where there is a serious issue is in the issue of capital gains.  First, the gift does not trigger a capital gains tax, but it also does not eliminate any capital gains.  This is important.  If your mother intended to sell the house and take the capital gains exclusion on the sale of a primary residence, then by giving it away, she cannot take that exclusion.  The seller would be the children and they could not take the exclusion.  There might be significant taxes.

The rules differ if the house is sold later and powers can be added to eliminate capital gains on your mother’s passing.

Another tax issue is that some homes have a property tax deferral or county loans which are triggered by a gift.  Your mother should investigate the status of any taxes or liens.

Finally, the gift of a home should also be reviewed from many other angles such as whether the recipients have legal problems, if there are creditors, if there is a need to apply for benefits like Medicaid and more.

Considering the many potential tax issues involved, it is important to consult with an experienced estate planning attorney before deciding to gift property to family members. Contact the estate planning attorneys with the Law Offices of Nay & Friedenberg in Portland, Oregon at (503) 245-0894 to set an appointment.