My mother owns the house that i am living in, which does not have a
mortgage, and she wants to put the house in my name. What is the
easiest way to do this, so that she does not incur any tax
liabilities. Also, if there has been work done to the house, can
anyone write this off?

---

Request for Question Clarification by denco-ga on 18 Nov 2006 11:10 PST

Howdy yaz67-ga,

Do you have an approximate valuation of the house?  This can determine the
best vehicle to accomplish your task.  Thanks!

Looking Forward, denco-ga - Google Answers Researcher

---

Request for Question Clarification by keystroke-ga on 20 Nov 2006 07:38 PST

It would also be helpful to know what state this involves.

--keystroke-ga

Hello yaz67,

Thank you for your interesting question.

There are a few different ways to give a house as a gift without incurring taxes.

1.  Do nothing.  Your mother could keep the house until she dies, in
which case you would inherit it and, if the house is worth less than
$250,000 and her estate is worth less than $2 million, you would owe
no taxes.  The house's basis, the amount from which taxes are
calculated, would be the fair market value of the house at your
mother's death.

2.  She could give it to you as a gift.  Your mother could just give
the house to you.  Each person has an automatic $12,000 gift tax
exemption each year-- you can give up to $12,000 in gifts to a single
person for the year tax-free and without filling out any forms.  Each
person can be given $12,000.  So, for instance, if she wants to give
it to you and another person, the total would be $24,000.  In
addition, each person has a $1 million lifetime gift tax exemption
above and beyond the $12,000 per person per year.  So, unless your
mother has given away $1 million in gifts above that $12,000 per year
level, the house should fit under that $1 million umbrella and she
should be able to give it to you tax-free.  If you get the house as a
gift, your basis for the house would be the amount that your mother
bought the house for-- so, if she paid $35,000 in 1980 for it, and you
sell it in a few years for $300,000, you would be considered as having
$265,000 in profit and you would have to pay taxes on $15,000 of that
(the amount above the $250,000 individual capital gains exclusion).

In this gift example, in which capital gains may have to be paid at a
later sale, the basis can be stepped up by adding the cost to the
basis of work done that increases the home's value.  The details for
what can be considered an increase in value and what cannot are
myriad.  Regular repairs and upkeep such as painting are not
considered to improve the value (even though they may actually
increase the home's selling price). You can find them here:

Adjusted Basis
http://www.irs.gov/publications/p530/ar02.html#d0e1868

The easiest way to actually give the house as a gift would be through
a quit claim deed.  It is a document in which your mother would sign
over her rights to the property to you and relinquish all claim to the
property.

"Quit Claim Deed Tax Implications"
http://www.thinkglink.com/Quit_Claim_Deed_Tax_Implications.htm

Sources:

Transamerica-- Estate Planning
http://www.transamerica.com/planning_your_finances/estate_planning/passing_your_home_to_loved_ones.asp

"Home improvements that can lower your capital gains"
http://www.bankrate.com/brm/news/mortgages/20040220a1.asp

Search terms:
irs gift tax house
irs increase basis increase value
quit claim deed taxes

If you need any additional clarification, let me know and I'll be glad
to assist you.

--keystroke-ga

Such a deceptively simple question! There are a dozen possible issues,
depending on what you & mom want to accomplish & how much tax you want
to pay.

From a tax standpoint, gifting a house is a terrible idea, because the
recipient gets the house with the donor's basis. That means that
whatever your mother's basis was becomes your basis when you sell the
house. You can exclude $250,000 of profit on sale, but could easily
end up with taxable gains. Mom will also have to file a gift tax
return, but probably won't pay any gift taxes. Also, gifting the hosue
will make mom ineligible for Medicaid for many months, if that's an
issue.

OTOH, if you inherit the house, your basis is the house's fair market
value on the date of your mother's death. This step up in basis is tax
free & will likely eliminate any taxable capital gains when you sell
the place.

Your mother should see an estate planner to discuss what she wants to
accomplish & the tax implications of each option, then decide what to
do. Since you're getting the house for free, you might volunteer to
pay the lawyer's fees yourself.

Yes, it may make her inelligble for medicare for the next few months,
but if she is years away from needing it; now would be the time to
transfer the house.

The basis would be arried over, and the home improvements would
already be reflected in the basis.

Note: remodelling a home or putting a new roof on and things of that
nature does not increase the basis.  That is upkeep, not an
improvement.  Putting on an addition and things such as that increase
the basis.

Again the question is what is the value of the house and why do you
want to do this? (i.e. is your momr emarrying and she doesnt want the
new husband to claim the house should she croaks?)  Or is this for
medicare planning.

The issues also vary by state.

For any of these issues and more, you should seek out a professional
rather than post these comments on a forum and thinking u can rely on
it.