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Inheriting Property? Avoid this mistake.
Should your parents gift their share of the vacation house now, or leave it to you when they pass away? Actually, you might want to consider gifting your share of the property BACK to your parents first. Here’s why. Let’s say you co-owned a beach house with your parents. The property had appreciated significantly, and they wanted to figure out the smartest way to eventually transfer ownership. When you inherit appreciated property, you generally receive what's called a step-up in cost basis. Essentially, the property's tax basis resets to its fair market value at the date of death. That can eliminate years of taxable appreciation. If your parents own 100% of the property when they pass, you could potentially receive that step-up on the entire property, not just their original share. That could be meaningful. Now, before you go transferring your share back to Mom and Dad, there are a few catches. First, you're giving up ownership and control. That means your parents could potentially sell the property, change their estate plan, or leave it to someone else. So be nice to them. Second, the IRS has a one-year rule that can eliminate the step-up on the gifted portion if the parent dies within a year and the property comes back to you (along with some other specifics on the precise ownership and estate inheritance details). And depending on the property's value, you may need to file a gift tax return when you transfer your share back, and some other costs. So you want to make sure the potential tax savings are worth the risks, that the ownership and estate documents are structured properly, and that everything is documented before anyone signs over their share. But this is definitely something you’ll want to understand and see how it may benefit everyone. If you've got a jointly owned family property situation, we're happy to help you think through the options and coordinate with your estate attorney before anything moves. #EstatePlanning #CapitalGainsTax #Inheritance #FinancialPlanning
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