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Inheriting A Tax Burden?
Question: My mother has reached great age and is very concerned about the future of her home. She has several children but would like to leave the property to me. We’re not rich, but she worries that I may face a large estate tax, a problem because as the result of a severe accident my income is limited. Would it make sense to put my name on the home before she dies?
Answer: The overwhelming probability is that there will be no estate tax.
The IRS reports that in 2012 there were 9,412 cases where the payment of an estate tax was required. That same year there were 2,543,279 deaths according to the National Center for Health Statistics, meaning that 2,533,867 estates – 99.63 percent – did not pay a dime in federal taxes.
The reason so few estates are taxed is very simple: You need a lot of net worth before an estate tax is due, $5,340,000 in 2014. This threshold means that virtually no one pays the federal estate tax.
What about putting your name on the deed? Most probably that’s a step you want to avoid because of – you guessed it – taxes.
When you inherit a property your cost basis is the value of the property at the time of passing. If the house was bought for $100,000 and was worth $250,000 at the time of your mother’s death, the “stepped up” tax basis is $250,000. This is good news because you will not have to pay a capital gains tax on the new and higher value, the difference between the acquisition price ($100,000) and the value at the time of death ($250,000), a total in this example of $150,000. Alternatively, if your name is on the deed and the property is sold then you can face a large capital gains tax bill.
The rules for your state and perhaps even your locality may differ from federal standards. For this reason it’s best to get advice from an attorney who specializes in elder law. If cost is an issue then contact the local Legal Aid Society or bar association.
A will is important, but in our age of paperwork and more paperwork you should also ask about such documents as a power of attorney, an advanced health care directive, a HIPPA release form, etc.
Such forms may be available at no cost from your state attorney general, however questions regarding estates, taxes and personal preferences are best resolved with professional help.
Because you have several siblings the time to resolve these issues is now, while you mother can make her wishes known. This approach is most likely to produce an orderly estate, one without bickering, dispute and – most likely – a 99.63 percent chance of no federal estate taxes.
Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to firstname.lastname@example.org.View Foreclosure Article Archives
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