Taxes may be necessary, but that does not make them pleasant. Fortunately, the law permits individuals to give away certain assets to friends and family members without the recipients being forced to pay any gift or inheritance taxes. If you would like to pass your home on to your grown up children tax free, you may be able to do so, depending on the current value of your home, and if you have given away any large tax-free gifts in the past.
Familiarize yourself with the laws regarding tax exempt gifts. As of February 2010, the tax laws permitting tax-free gifts are still in effect. The laws regarding how much the IRS will permit you to give to your grown children without paying taxes on the gift may change at any time.
Assess how much your home is worth. If your home has a fair market value of less than one million dollars, you may freely sign it over to your children without them having to pay any gift or inheritance taxes on the property. If your home is worth more than one million dollars, but less than 3.5 million, you may leave the home to your children in your will tax free.
Consider whether you have made any large monetary gifts in the past. Any previous gifts to friends and family members of a value greater than $13,000 must be subtracted from the total of your lifetime tax-free gift exemption of one million dollars.
Set up a Grantor Retained Income Trust (GRIT). This type of trust allows you to gift your home to your children now, without your children paying taxes on the home. In addition, you can continue to live in your home for ten years after placing it into the GRIT.
- You and your spouse are both entitled to separate gifts. Thus, you may combine your tax-exempt gifts to a total of two million dollars and your tax-exempt estate to a total of seven million dollars.
- You may give away more than $13,000 of tax free income each year provided that your gifts are not made to the same person in the same year.
- Check with a tax attorney to ensure that you are aware of the most current laws regarding gift and inheritance tax.
- You can gift your home to your children without placing it into a GRIT, but this could result in your children paying capital gains tax on the property if it has increased in value since you initially purchased it.
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