Transferring land from parent to child

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runfast4
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Transferring land from parent to child

Post by runfast4 » Mon Mar 25, 2019 3:20 pm

My parents own ~1.3 acres of land that they would like for my wife and I to have to build a house on. They don't want us to have to buy the land from them, but wish to give it to us. The piece of land is considered part of my inheritance, but my parents are still <60y/o and would like for us to be able to build on it now. What is the best way to transfer the property? What tax implications would there be for this transfer/gift? Thanks in advance!

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RickBoglehead
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Re: Transferring land from parent to child

Post by RickBoglehead » Mon Mar 25, 2019 3:25 pm

Gift deed. They file gift tax forms with federal government. https://www.deeds.com/forms/arkansas/gift-deed/
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J295
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Re: Transferring land from parent to child

Post by J295 » Mon Mar 25, 2019 3:29 pm

May or may not be a gift tax return required. What is the value of the land?

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runfast4
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Re: Transferring land from parent to child

Post by runfast4 » Mon Mar 25, 2019 3:33 pm

J295 wrote:
Mon Mar 25, 2019 3:29 pm
May or may not be a gift tax return required. What is the value of the land?
They purchased it in 2014 for $33k and I would assume the area has appreciated since then. It hasn't been appraised since then, so I am not sure of the current value.

J295
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Re: Transferring land from parent to child

Post by J295 » Mon Mar 25, 2019 3:47 pm

On the federal gift tax return issue, it could be a joint gift from mom and dad to you and your wife. Thus, the exclusion is $15,000 times four equals $60,000.

Document this as a joint gift to you and your spouse from both of your parents and no federal gift tax return is necessary.

I would do the transfer in our state by a warranty deed. Prior to the transfer I would also be in communication with my construction lender and I would secure title insurance. Before someone chimes in and states title insurance isn’t necessary since this is coming from your parents, remember that if there was a covered defect in title when your parents obtained the property and they quit claim it to you then any claim of the parents under their title policy will be extinguished and you will be stuck with a title defect. Moreover, and this is assuming you are getting financing, your lender will require a title policy. Get it handled now as a matter of best practices.

Good luck. We have built and renovated homes, and it’s lots of fun.

Stormbringer
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Re: Transferring land from parent to child

Post by Stormbringer » Mon Mar 25, 2019 6:42 pm

One day, unexpectedly, a deed showed up in the mail. My 75 year-old father-in-law gave us some land. We don't really want it, but it's been in the family since the 1800's, and now we're paying $1,000 a year in taxes on it. If we sell, we have to pay capital gains on it, because our tax basis is zero. Argh!

Trying to find some other family member to give it to.
"Compound interest is the most powerful force in the universe." - Albert Einstein

retire2022
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Re: Transferring land from parent to child

Post by retire2022 » Mon Mar 25, 2019 7:22 pm

OP You may want to check with your state county register's office for transfer's of deed, it should be recorded and transfer tax paid.

In some locations it is free or low cost, additionally once transferred, you may consider having surveyed so that the county actually has a record of transfer.

Having a surveyor will establish legal ownership "metes and bounds" and you will be in a better position if the neighbor encroaches on the said property.

For example encroachment from neighbor's land, right of way etc, in my upstate Vacation home, my attorney indicated that transfers to LLC or family is little or would not impact transfer taxes.

On my property 89 acre property, the mother neglected to record the will, when she unexpectedly passed, my lawyer and I forced the seller to go through probate, without having a recorded deed and or title it will be hard to sell later on.

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runfast4
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Re: Transferring land from parent to child

Post by runfast4 » Wed Mar 27, 2019 8:32 am

Does it need to be appraised before being gifted?

retire2022
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Re: Transferring land from parent to child

Post by retire2022 » Wed Mar 27, 2019 11:56 am

runfast4 wrote:
Wed Mar 27, 2019 8:32 am
Does it need to be appraised before being gifted?
Each state’s county has different rule, ask them. If you just want an idea Zillow has estimates, if you imput the address.

ohai
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Re: Transferring land from parent to child

Post by ohai » Wed Mar 27, 2019 12:00 pm

Stormbringer wrote:
Mon Mar 25, 2019 6:42 pm
One day, unexpectedly, a deed showed up in the mail. My 75 year-old father-in-law gave us some land. We don't really want it, but it's been in the family since the 1800's, and now we're paying $1,000 a year in taxes on it. If we sell, we have to pay capital gains on it, because our tax basis is zero. Argh!

Trying to find some other family member to give it to.
If you sell it, you'd still get the proceeds after tax, right? Why would you rather give it away?

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Epsilon Delta
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Re: Transferring land from parent to child

Post by Epsilon Delta » Wed Mar 27, 2019 12:32 pm

runfast4 wrote:
Mon Mar 25, 2019 3:33 pm
They purchased it in 2014 for $33k and I would assume the area has appreciated since then. It hasn't been appraised since then, so I am not sure of the current value.
Your basis in the gift will be the donors basis. So you should also get documents that establish their basis.

You might never need to establish the basis, but there are circumstances where it could save you $5,000 or more in taxes.

shariq1989
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Re: Transferring land from parent to child

Post by shariq1989 » Wed Mar 27, 2019 12:34 pm

ohai wrote:
Wed Mar 27, 2019 12:00 pm
Stormbringer wrote:
Mon Mar 25, 2019 6:42 pm
One day, unexpectedly, a deed showed up in the mail. My 75 year-old father-in-law gave us some land. We don't really want it, but it's been in the family since the 1800's, and now we're paying $1,000 a year in taxes on it. If we sell, we have to pay capital gains on it, because our tax basis is zero. Argh!

Trying to find some other family member to give it to.
If you sell it, you'd still get the proceeds after tax, right? Why would you rather give it away?
Exactly what I was thinking. If it was left in your hands, you should still earn some money after the sale.

Stormbringer
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Re: Transferring land from parent to child

Post by Stormbringer » Wed Mar 27, 2019 1:29 pm

ohai wrote:
Wed Mar 27, 2019 12:00 pm
Stormbringer wrote:
Mon Mar 25, 2019 6:42 pm
One day, unexpectedly, a deed showed up in the mail. My 75 year-old father-in-law gave us some land. We don't really want it, but it's been in the family since the 1800's, and now we're paying $1,000 a year in taxes on it. If we sell, we have to pay capital gains on it, because our tax basis is zero. Argh!

Trying to find some other family member to give it to.
If you sell it, you'd still get the proceeds after tax, right? Why would you rather give it away?
Well, the issue is that the land has been in the family for 150 years. Originally it was a larger farm, carved into smaller pieces over the years and there are aunts/uncles, cousins and nephews/nieces all clustered together on the various parcels. My wife isn't comfortable with cashing it in without first seeing if a family member wants it. Her dad was probably hoping we would keep it and build a vacation home on it or something.
"Compound interest is the most powerful force in the universe." - Albert Einstein

Topic Author
runfast4
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Re: Transferring land from parent to child

Post by runfast4 » Wed Mar 27, 2019 3:19 pm

Epsilon Delta wrote:
Wed Mar 27, 2019 12:32 pm
runfast4 wrote:
Mon Mar 25, 2019 3:33 pm
They purchased it in 2014 for $33k and I would assume the area has appreciated since then. It hasn't been appraised since then, so I am not sure of the current value.
Your basis in the gift will be the donors basis. So you should also get documents that establish their basis.

You might never need to establish the basis, but there are circumstances where it could save you $5,000 or more in taxes.
Ahh I was curious about what the basis would be as well, I just didn't know how to ask about it clearly. Thank you.

ohai
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Re: Transferring land from parent to child

Post by ohai » Thu Mar 28, 2019 9:54 am

Why don't you create a charity, like a land preserve or something... then donate the land to this organization and take a tax deduction. Then, your NGO will be exempt from real estate tax. Problem resolved.

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