| Should I buy for $1 or Receive as a Gift? |
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3tonrhyno
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| Should I buy for $1 or Receive as a Gift? |
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I have a relative that wishes to gift some land to me and the wife. We plan to build on this property in the next year or so. So, here are the questions:
1- If I receive the land as a gift, wouldn't I have to pay some sort of income tax on the value of that land if it's over 10k?
2- Would it make sense to buy the property from them for $1? If I buy it for $1, would they be able to write off the loss? Would that also devalue the asset?
3- What is the best course of action for both parties given the above questions?
Signed... completely lost in Mooresville. 
An unwise man once said... "Huh?"
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Tue Jul 19, 2005 3:05 pm |
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KathMorgan
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Definately receive it as a gift. This is the only way to go for both you and the giftor. Several reason:
1) If you "pay" $1 for the land this is your basis in it forever and ever, amen. If and when you go to sell it you get killed in capital gains. If you take a gift, your basis is the same as the person giving its basis plus any gift tax paid.
2) The person who gives the gift is the one liable for the gift taxes (if the value is over 11K) not the receipiant. Now, of course, since your relative is being nice enough to give you the land you would probably want to pay any taxes due for them, but THEY are actually responsible for the taxes.
3) Even if you "bought" the land for $1, the IRS would consider it a gift and the taxes would still have to be paid and the giftor would not be able to take any kind of loss.
Kathy Morgan EA
H & R Block Master Tax Advisor
Proud Mom of Sgt RT Morgan
1/156 AR BN Louisiana Army National Guard
Shreveport, La currently serving in Baghdad, Iraq
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Tue Jul 19, 2005 3:57 pm |
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3tonrhyno
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quote:
Originally posted by KathMorgan
Definately receive it as a gift. This is the only way to go for both you and the giftor. Several reason:
1) If you "pay" $1 for the land this is your basis in it forever and ever, amen. If and when you go to sell it you get killed in capital gains. If you take a gift, your basis is the same as the person giving its basis plus any gift tax paid.
2) The person who gives the gift is the one liable for the gift taxes (if the value is over 11K) not the receipiant. Now, of course, since your relative is being nice enough to give you the land you would probably want to pay any taxes due for them, but THEY are actually responsible for the taxes.
3) Even if you "bought" the land for $1, the IRS would consider it a gift and the taxes would still have to be paid and the giftor would not be able to take any kind of loss.
Thank you very much for this clarification.
One last question... how is the giftor taxed? In other words, is there a set Percent or does it depend on their tax bracket? You are correct that I would want to pay those taxes, but being the analytical that I am, I would like to have some sort of idea of how much to expect 
An unwise man once said... "Huh?"
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Tue Jul 19, 2005 4:23 pm |
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efflandt
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The current allowable gift exclusion is $11,000 annually per person giving or receiving. But a lifetime exclusion could cover larger amounts. See http://www.irs.gov/businesses/small/article/0,,id=98968,00.html
If property is gifted to you, your cost basis is what they paid for it originally. See "What if I sell property that has been given to me" at http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
"If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift." So buying it for $1 might be considered a gift, and/or may make you liable for more captial gain when sold.
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Tue Jul 19, 2005 6:19 pm |
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KathMorgan
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As efflandt stated, there would probably not actually be any money due, but it would lower the "lifetime" exclusion for the giver. I am assuming that if they can afford to give you a generous gift like this that the top limit of the exclusion may be a factor. But remember the 11K per year is per person per giver, so if your relative is married and so are you, the total gift could be valued up to 44K in one year with no gift tax return necessary. (11K from each giver to each recipient, your relative and spouse to you and spouse). So you might be able to go that route.
Kathy Morgan EA
H & R Block Master Tax Advisor
Proud Mom of Sgt RT Morgan
1/156 AR BN Louisiana Army National Guard
Shreveport, La currently serving in Baghdad, Iraq
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Wed Jul 20, 2005 7:40 am |
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bong12187
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| Re: Should I buy for $1 or Receive as a Gift? |
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quote:
Originally posted by 3tonrhyno
I have a relative that wishes to gift some land to me and the wife. We plan to build on this property in the next year or so. So, here are the questions:
1- If I receive the land as a gift, wouldn't I have to pay some sort of income tax on the value of that land if it's over 10k?
2- Would it make sense to buy the property from them for $1? If I buy it for $1, would they be able to write off the loss? Would that also devalue the asset?
3- What is the best course of action for both parties given the above questions?
Signed... completely lost in Mooresville.
Good advices from KathMorgana and Efflandt. I'd like to throw something into the pot and hope to get some discussions. Problem here is how to transfer the land without anyone paying any taxes (whether the relative or the 3tonrhyno). 2tonrhyno also mentioned that they want to build maybe a house into the property within a couple of years. Question, how much did the relative purchase the property? I'd suggest that they create an LLC. They can throw the property as part of the resources. They can they create a bylaw with the breakdown percentage being 50%Mr. Rhyno, 49% Mrs. Rhyno, and 1% relative. They must also rewrite the bylaw so that majority of the LLC can make the decision to sell or mortgage the property. Once 3tonRhyno is ready to build, they are in contol of an asset in the LLC and they can then use the property as collateral. Lots and lots of paperwork but it can be done and there will be no tax pmt involved.
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Wed Aug 10, 2005 2:11 am |
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