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  • Cabin in the woods

    Not sure if this is the perfect forum to ask this question but it has got to be close.

    My parents own a cabin in the woods and their plan has always been to leave it to me in their will. Now they have broached the idea of just giving it to me now so I can start making upgrades as I see fit, paying for the minimal taxes, etc. They don't want me to buy it from them, but really just want to put my name on the deed instead or "sell it to me for $1". Does that really work? Is that possible? Seems like that probably isn't on the up and up with the IRS. Anyone have any experience with some thing like this. The value is probably around $100,000. It is literally 20 acres of hunting land with a cabin that just got electricity this year and still has an outhouse. Thanks.

  • #2
    They can gift it to you. https://www.irs.gov/faqs/capital-gai...le-of-home-etc

    The problem will be your adjusted basis if you ever sell it.
    Better strategy is to pay for the upgrades and inherit it with a stepped up basis.

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    • #3
      I’ll be honest, I thought this was going to be about the movie. I won’t say I’m disappointed but it’s tough to act like I’m not.

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      • #4
        Also, medicaid lookback issues to think about. Depending on their / your wealth level

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        • #5
          Came for a horror movie plot, stayed for inheritance discussion.

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          • #6
            I think they can just gift it to you now and it just counts against their lifetime total. So unless they've got 8 figure net worth it probably doesn't matter.

            I don't know for sure what happens to the basis. I assume your basis is just the value when you receive it (whether they die or not). So maybe you will lose a bit there.

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            • #7
              The outhouse is more terrifying than anything Joss Whedon could conjure up. The thought of sitting on that seat in the middle of a Northern Wisconsin winter will keep any horror fan lying awake at night.

              After reading through the IRS link, it seems easiest to just pay for any updates now and then let it pass to me through their estate.

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              • #8
                Gift = bad. I have no personal experience but i have heard that this is an error. It results in you owning at their basis.
                You lose the step up in basis at death.
                So let us say they bought it 40 years ago for $25,000.
                Now it is worth 300,000.
                If you inherit at death your basis becomes 300k rather than 25k.
                if they die and you inherit you can sell for 300k and pay zero taxes. If they gift it to you then die you owe taxes on 300-25=275k when you sell it.
                So it is a 275k tax gain for no reason.
                Might not be correct but I would check with a cpa.

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                • #9
                  Originally posted by AR View Post
                  I think they can just gift it to you now and it just counts against their lifetime total. So unless they've got 8 figure net worth it probably doesn't matter.

                  I don't know for sure what happens to the basis. I assume your basis is just the value when you receive it (whether they die or not). So maybe you will lose a bit there.

                  After looking into it for a few minutes, it does look like whether they are dead or alive makes a huge difference in terms of cost basis, so waiting to inherit seems better.

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                  • #10
                    Originally posted by AR View Post


                    After looking into it for a few minutes, it does look like whether they are dead or alive makes a huge difference in terms of cost basis, so waiting to inherit seems better.
                    yes, I have seen this before. I am not a CPA and I have not personally had the displeasure of experiencing it but I have heard of a case where this happened. It is a pitfall.

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                    • #11
                      Originally posted by AR View Post
                      After looking into it for a few minutes, it does look like whether they are dead or alive makes a huge difference in terms of cost basis, so waiting to inherit seems better.
                      is

                      The gifting vs the step up basis of an inheritance is huge for "family property" that is passed down from generation to generation.
                      With a gift, the basis of the current owner is passed to the new owner. If grandpa gave it to Dad and Dad gives it to you, that is a tax that is completely avoidable.
                      Very common desire with passing family businesses and farms. Dad is not running it and wants to "gift" to the next generation. Seems logical, but it triggers basis transfer. One should have some really good reasons for gifting assets. Same concept as DAF's.

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                      • #12

                        We've had similar discussions in our family. I think in many ways it depends on to what degree you wish to take ownership of the property.

                        If it's a place you enjoy and use, maybe take responsibility now for the taxes/maintenance to help out your family, with the understanding that the property will be left to you in a will/trust. If you enjoy the property, I think receiving it in a will/trust (rather than being put on the deed) is better, so that you can take advantage of the step up in basis to avoid taxes if you should ever choose to sell it. If it's not a place you see yourself owning/enjoying, maybe just help them sell it and relieve them of the associated costs. Just my 2 cents.
                        Last edited by Pixel; 01-07-2022, 02:51 AM.

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                        • #13
                          Transfer on Death Deed is available in some states. Qualifies for stepup in basis and takes it out of probating the will.

                          Regarding the outhouse for a cabin in the woods. I wouldn’t be concerned about lions tigers and bears. I would check for wasps, bees and critters. Just saying you might be an intruder.

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                          • #14
                            My parents wanted to do this for myself and my brother. There were many reasons for why it was a bad idea but this was one of them. If they gave it to us now, we'd lose the step up (and they're still living there and would have continued to pay all expenses) and we sent them articles about step-up and why this is financially the better move and they still don't understand/are offended that we turned down such a "nice gift."

                            Don't forget too if you own it that opens you up to more liability issues at a place where you aren't often physically there (my brother and I also cited this as a reason to turn it down).

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                            • #15
                              Originally posted by JBME View Post
                              My parents wanted to do this for myself and my brother. There were many reasons for why it was a bad idea but this was one of them. If they gave it to us now, we'd lose the step up (and they're still living there and would have continued to pay all expenses) and we sent them articles about step-up and why this is financially the better move and they still don't understand/are offended that we turned down such a "nice gift."

                              Don't forget too if you own it that opens you up to more liability issues at a place where you aren't often physically there (my brother and I also cited this as a reason to turn it down).
                              Family dynamics (both from the donor and receiver) are so important.
                              We learned about this from a situation. A BIL wanted his house to go to his mother. However, he wanted my wife to make sure every dime would go to his Mom. After that, keep it. No need to give anything to my siblings. They haven't lifted a finger.
                              We now have the house, keep it and maintain it for the MIL. When money runs out, well , that is a different issue. I doubt we will get much help but plenty of opinions. I can deal with opinions, not the legal aspect of MIL's estate. We bypassed the MIL at his direction and have a will to back it up. Not sure if we will sell the house. We need no approvals. Not hiding it from them, they have every opportunity to get involved.

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