‘The Big Move’ is a new MarketWatch column seeking to answer questions about navigating the world of real estate.
We’re working through the various tax ramifications, and I’m starting to worry this could be a mistake. It will take time for us to move out our belongings and fully settle in our beach home anyway, so I’m wondering whether there’s a better way to guarantee our daughter will have an affordable home for years to come. What advice do you have?How lucky your daughter is to have such generous parent. You’re not alone in worrying about your child’s ability to afford the cost of housing.
Under President-elect Biden, the tax code could become less generous to wealthier Americans, which could increase the taxes under those rules.But the tax considerations don’t end with the gift tax. There are also capital gains taxes to consider — and that’s where a gift of this nature gets tricky. If you gift the home to your daughter, she will be the one who will pay capital gains taxes one day if she sells it.
Let me illustrate that with a simple example. Let’s say you bought a home 20 years ago for $100,000 that’s now worth $600,000, and you put in around $50,000 in repairs since then. If you sold it today, the capital gain from the sale would be $450,000. At the federal level, you can exempt up to $500,000 in capital gains from the sale of home, providing you meet certain requirements.
The short answer is yes. It should be part of your estate for a step-up in basis.
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