Real Estate Inheritance

Forum|Forum|3 years ago
August 31, 2022
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I plan on giving a property to my children. No one in the family lives in this property. I have a low cost basis. When the children inherit the property do they then get a stepped up value due to a new appraisal? If they do receive the stepped up value is that the new cost basis for the property? This would be extremely important as they may then sell the property.

VolvoGirl

Yes if they inherit it when you pass. If you give it to them now before you die it is a gift and they keep your low cost basis.

44876Author

So I may understand lets' say my cost basis is $350,000 due to improvements. The initial cost was $133,000. It may be assessed today at $1,250,000. If I understand you then when I die their cost basis is $1,250,000 and if they sell the property they only owe taxes of capital gains above $1,250,000. Am I correct?

rjs

@44876 wrote:

So I may understand lets' say my cost basis is $350,000 due to improvements. The initial cost was $133,000. It may be assessed today at $1,250,000. If I understand you then when I die their cost basis is $1,250,000 and if they sell the property they only owe taxes of capital gains above $1,250,000. Am I correct?

That is correct as long as you continue to own the property until you die, and your children inherit it after you die. But in your original question you said "I plan on giving a property to my children." Giving is not inheriting. If you give it to them while you are still alive, their basis is the same as your basis, $350,000 in your example. Their capital gain would then be the entire increase in value above $350,000.

You also said "No one in the family lives in this property." Who does live in it? Are you renting it to a tenant? If you are renting it out, or if you ever rented it out, that could change the calculation of the basis. If it's not rented out, what is it used for?

What type of property is it? Is it a single-family home, or something else?