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What are the taxes of helping my kids build a home?
Posted on November 20, 2012
Our daughter is building a new home with an in-law suite for us. I am 72 and my wife is 68. We plan to sell our present home and contribute $300,000 of the proceeds to live in this in-law suite. Is there a tax liability for our daughter or us? Also, since we plan to live out our lives in this arrangement, would this contribution be an estate asset for our beneficiaries? — Charlie H.
The good news: You and your wife won’t owe any tax on the sale of your home as long as you don’t make a profit of more than $500,000, says Abe Schneier, senior technical manager at the American Institute of CPAs.
But giving your daughter $300,000 complicates that picture. If you give that amount to your daughter as a gift, there won’t be an immediate tax liability for you or your daughter, says Schneier. But that gift will reduce your lifetime gift-tax exclusion, which is the amount that you can give until you have to start paying taxes on gifts. Reducing the exclusion may also increase the amount of your estate subject to taxes. (This year, the combined lifetime gift- and estate-tax exclusion is $5.12 million for individuals. Next year, those exclusions are set to fall to $1 million each for gifts and estate tax.)
The new property won’t be an estate asset for your beneficiaries unless your names are on the title, says Schneier. While a CPA can help with planning, Schneier suggests speaking with an estate tax attorney who can help you structure an agreement on the property’s title or any intentions to include it in a will or trust.
Another option is to purchase part of the home with your contribution, says Mary Kay Foss, a CPA specializing in real estate transactions at Sweeney Kovar in Danville, Calif. You would owe property taxes on your share down the line, and your share of the home would then become a part of your estate.