A word of caution on property transfers…..

Let’s say you gave someone $600k of property at today’s market value.  It has been owned along time and only $30k is the original purchase price.  We can add improvements to the original $30k say a pool, additional room,…. Add those improvements of $40k to the $30k and we have what we call BASIS of $70k.  That is what the giver of the gift is transferring to the receiver of the gift.  If the property is later sold the Income tax calculation starts with a basis of $70k. 

If it is a gift the receiver takes the gift into their inventory of stuff at the giver’s basis $70k.  Now lets say the property is sold sometime later for $620k.  The long term capital gain is $620k – $70k = $550k (to keep it simple let’s ignore the $250k exclusion if this property is a single individual’s that has lived in it 2 of the last 5 years ($500k if married filing joint).

That is a lot to pay.  If the property is NOT GIFTED but instead the receiver of the property INHERITS the property, the receiver then takes it in their inventory of stuff at the date of death value…..

IF it was worth $600k at the date of death… and sold later for $620k, the BASIS is now $600k for a gain of only $20k.

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