A common question, and one where many taxpayers often make mistakes, is whether it is better to receive a home as a gift or as an inheritance. Generally, from a tax perspective, it is more advantageous to inherit a home rather than receive it as a gift before the owner's death.
You can pass on your wealth through gifting, giving away assets during your lifetime. Another option is leaving an inheritance for heirs when you die. Both methods come with tax implications.
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The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether or not the donor intends the transfer to be a gift. The gift tax applies to the transfer by gift of any type of property.
Inheritance refers to property acquired through the laws of descent and distribution . Though sometimes used in reference to property acquired through a will , the legal meaning of inheritance includes only property that descends to an heir through intestacy , when a person has died intestate .
A broad categoty of non-inherited properies can be thought of as "layout properties": properties which change the size of the element in some way, or how it interacts with the elements around it. These properties include things like margin , padding , height , width , box-sizing , position , and display .
Let us take an example for better understanding. If a father transfers the ownership of his house, which is self-acquired in nature, to his son, then such property can be recognised as an inherited property. The transfer of such property can be by will, gift, or, in some cases, sale.
For gifts the holding period is the sum of the time held by the donor and the donee, sometimes referred to as a tack-on holding period. Special Considerations – In some cases, a homeowner may transfer the title of their home but retain the right to live in it for their lifetime, establishing a de facto life estate.
A: There are likely no taxes due if you gift instead of sell your home to your son. You could, in fact, avoid capital gains tax. Transferring the home to your son is considered a gift. Currently, you can gift up to the federal estate and gift tax exemption amount of $12.06 million.
Use the annual gift tax exclusion.
Each year, you can give a certain amount of property to a family member without incurring gift taxes. As of 2024, the annual gift tax exclusion is $18,000 per recipient. This means you can gradually transfer property over several years to minimize tax liabilities.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
Upon selling an inherited asset, if the inherited property produces a gain, you must report it as income on your federal income tax return as a beneficiary.
For gifts from individuals the rates are the same, as for inheritance. The standard inheritance tax rate is 40%.
Beneficiaries may need to pay out-of-pocket for ongoing expenses like property taxes, utilities, insurance and general upkeep. Also, the probate process is a matter of public record. This means that the details of your estate, including information about your home, become accessible to the public.
You have a few options if you've already received property as a gift: You can simply keep the gift. You'll be on the hook for taxes if you sell the property, but the basis will step up for your heirs if you hold onto it until you die. They can then sell it and shelter some of the capital gains.
The primary difference between a gift and an inheritance is the time each occurs. A gift is an asset passed on during a person's lifetime, whereas an inheritance is passed on after the person's death.
It is usually better for your heirs to inherit real estate at your death rather than to receive it as a gift from you during your life. This is because it is tax efficient for the property to pass at death due to the “stepped up basis” for capital gains tax purposes.
Inheritances — Your holding period is automatically considered to be more than one year. So, when you sell the inherited stock, it's subject to long-term capital treatment. This applies regardless of the actual holding period.
The capital gains tax implications for the recipient of a gifted home are directly tied to the property's basis and the donor's holding period. If the recipient sells the home, they will owe capital gains tax on the difference between the sale price and their basis in the home.
The gift tax is a federal tax levied on taxpayers who give money or property that exceed a certain lifetime gift tax exclusion limit. For tax year 2025, the lifetime gift tax exclusion limit is $13.99 million. ( In tax year 2024, it was $13.61 million.)
As previously noted, the 5-year aging rule applies to inherited Roth IRAs as well, and rules around them can be complicated. To make qualified distributions, it must be 5 years since the beginning of the tax year when the original account owner made the initial contribution, even if the new owner is 59½ or older.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
“Cash is king when it comes to leaving an inheritance,” said Carbone. “It's the simplest asset to deal with in terms of a transfer.”
If the property needs to go through the probate court process, the house can stay in a decedent's name until the probate process has been completed and ownership of the property has been transferred.