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What is the tax basis of a real estate gift?

August 10, 2011

From:  Su
Date:  12 Sep 2010
Subject:  real estate gift tax question

Hi Michael,

I have a couple questions regarding transfering rental house property to my children.

We bought a house in 1987 for about $300,000 and used it as a principal residence until March, 2007. At that time, it was converted to a rental property. We would like to transfer the home to our children as a gift.

Would the tax basis of the residence still be $300,000, or would it be the current fair market value of about $750,000?

Would the transfer be subject to any taxes?

What is the maximum gift amount to transfer to each child?



Date:  18 Oct 2010

Hello Su,

The tax basis of property received as a gift is the lesser of the fair market value on the date of the gift or itís adjusted basis to the donor. In your case, that would be $300,000, less any accumulated depreciation for the period rented.

The transfer would probably be a reportable gift. Gifts are reported on Form 709, the U.S. Gift Tax Return. You can get a copy, with instructions, at www.irs.gov. The form is due by April 15 of the year following the gift. Some states also impose gift taxes. (California isnít one of them.)

The annual gift tax exclusion for 2010 is $13,000 per donor, per donee. That means you and your spouse can give up to $26,000 to each child without a tax consequence.

If you live in California, you will also need to claim the exclusion from real estate tax reassessment for transfers of less than $1 million of real estate for each child.

It may be you should get some help from a tax professional for this gift. Thatís our business!

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

What is the tax basis of a real estate gift?

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