How should my Dad leave us the proceeds from the sale of his land?
September 28, 2014 7:11 AM Subscribe
My Dad owns about 20 acres of land in a small town that he wishes to give to my brother, my sister, and myself now, not when he passes. My siblings and I plan to split the proceeds of the sale of the land evenly amongst us. Which way, tax-wise, would maximize the amount of money we receive from the land in the end? Should my dad give the title/deed to us first and we sell it, or Dad sells it and then gives us the money from the sale of the land?
My Dad owns about 20 acres of land (there are no buildings on this land, as far as I know it’s basically woods) in a small town that he wishes to give to my brother, my sister, and myself now, not when he passes. My siblings and I plan to split the proceeds of the sale of the land evenly amongst us. Initially we had talked about having my dad transfer the land to us and then we sell it. Later my brother comes up with the idea that my dad should sell it and then give us the money. My brother thinks it would be easier to deal with it that way because in his words, “He (Dad) has to do some kind of deed of trust legal stuff to leave us the land, and then we’d still be tasked with selling it later.” I am wanting to do whatever is smartest, which may or may not be the easiest route.
My question is: which way, tax-wise, would maximize the amount of money we receive from the land in the end? Should my dad give the title/deed to us first and we sell it, or Dad sells it and then gives us the money from the sale of the land? I am referring mostly to the question of which methods affect a certain amount of taxes that will need to be paid, such as property gains tax, gifted property, cost basis, and just general taxes and situations I don’t know about, or if either method yields negligible results and we should do what is "easiest". Any insight into what to do would be appreciated. We are trying to get this process done fairly quickly, although I know it can take a while before anyone may even purchase the land.
My Dad owns about 20 acres of land (there are no buildings on this land, as far as I know it’s basically woods) in a small town that he wishes to give to my brother, my sister, and myself now, not when he passes. My siblings and I plan to split the proceeds of the sale of the land evenly amongst us. Initially we had talked about having my dad transfer the land to us and then we sell it. Later my brother comes up with the idea that my dad should sell it and then give us the money. My brother thinks it would be easier to deal with it that way because in his words, “He (Dad) has to do some kind of deed of trust legal stuff to leave us the land, and then we’d still be tasked with selling it later.” I am wanting to do whatever is smartest, which may or may not be the easiest route.
My question is: which way, tax-wise, would maximize the amount of money we receive from the land in the end? Should my dad give the title/deed to us first and we sell it, or Dad sells it and then gives us the money from the sale of the land? I am referring mostly to the question of which methods affect a certain amount of taxes that will need to be paid, such as property gains tax, gifted property, cost basis, and just general taxes and situations I don’t know about, or if either method yields negligible results and we should do what is "easiest". Any insight into what to do would be appreciated. We are trying to get this process done fairly quickly, although I know it can take a while before anyone may even purchase the land.
You need an estates/tax attorney to help you maximize the gift.
It's highly dependent on what the property is worth as well.
Lawyer, lawyer, lawyer.
posted by Ruthless Bunny at 7:42 AM on September 28, 2014 [3 favorites]
It's highly dependent on what the property is worth as well.
Lawyer, lawyer, lawyer.
posted by Ruthless Bunny at 7:42 AM on September 28, 2014 [3 favorites]
I think Tanizaki is right. You should consult with a lawyer who handles estates and gifts. The answer is going to vary based on the value of the property, whether your state has a gift tax or not, whether the property has increased in value since he acquired it, etc. Federal gift tax shouldn't come into play unless the land is valued at more than the lifetime exclusion amount. Consulting with an attorney who handles these matters should be pretty inexpensive - you should just need an hour or two of their time unless they are actually handling the sale for you.
posted by bedhead at 7:42 AM on September 28, 2014
posted by bedhead at 7:42 AM on September 28, 2014
To add to what Tanizaki says: tax implications really depend upon jurisdiction. You give AskMe answerers no indication of where you are. We can normally assume that this means you're an American, but I gather even America has varying jurisdictions.
I'd suggest a solicitor, and the deletion of this question.
posted by pompomtom at 7:43 AM on September 28, 2014
I'd suggest a solicitor, and the deletion of this question.
posted by pompomtom at 7:43 AM on September 28, 2014
Sure, but whether it makes sense to do that kinda depends on the value of the land. Depending on where it is and how it's zoned, 20 acres could go for anywhere from $10K to a few million. Spending $3K to consult with an attorney about how to most efficiently structure the sale of a $30,000 property is likely to waste money, not preserve it.
Unless the land is worth millions, or you expect the rest of your dad's estate to be in the millions, you won't need to worry about (federal) gift or estate taxes; it'll just come off his lifetime exclusion.
posted by ROU_Xenophobe at 7:43 AM on September 28, 2014
Unless the land is worth millions, or you expect the rest of your dad's estate to be in the millions, you won't need to worry about (federal) gift or estate taxes; it'll just come off his lifetime exclusion.
posted by ROU_Xenophobe at 7:43 AM on September 28, 2014
I agree with all above, but, if it is a small amount, this might be simplest: He sells the land, then gives each of you the tax free gift amount ($14,000) each year until he's given it all.
posted by H21 at 9:56 AM on September 28, 2014 [3 favorites]
posted by H21 at 9:56 AM on September 28, 2014 [3 favorites]
The only benefit to doing the $14k/year as suggested would be that the giver would not have to file a gift tax return. Even if the gift to each sibling is, say, $100k, that would fall under the lifetime exclusion - the giver just has to file a gift tax return but there would be no tax due unless the total gifts exceed his total lifetime gift tax exclusion (currently $5.34 million). It's well worth spending a few hundred bucks for an hour talking to an estate attorney about this to make sure you're getting everything done correctly vs. taking the advice of internet strangers, though.
posted by bedhead at 10:46 AM on September 28, 2014
posted by bedhead at 10:46 AM on September 28, 2014
Odds are he should die with it. But it's hard to say because we don't have much info.
posted by jpe at 10:55 AM on September 28, 2014
posted by jpe at 10:55 AM on September 28, 2014
he wishes to give to my brother, my sister, and myself now, not when he passes
We are trying to get this process done fairly quickly
If he wants to give it to you now, and you're trying to get it done fairly quickly, why wouldn't you do what is easiest? "Easiest" also saves you money on lawyer fees.
posted by Bentobox Humperdinck at 10:58 AM on September 28, 2014
We are trying to get this process done fairly quickly
If he wants to give it to you now, and you're trying to get it done fairly quickly, why wouldn't you do what is easiest? "Easiest" also saves you money on lawyer fees.
posted by Bentobox Humperdinck at 10:58 AM on September 28, 2014
I think there are two kinds of taxes at play - gift tax and capital gains tax. According to this on the find law website the rules for the tax basis when you sell are different for gifts and inheritances. So, if your dad sells and gives you cash he pays capital gains and is also responsible for paying/reporting any gift tax. If he gives you the property and you sell then each of you is responsible for the capital gains and he is still responsible for the gift tax. So you can see how it would be very dependent on the tax situation of each party to figure out what is best.
posted by metahawk at 11:39 AM on September 28, 2014
posted by metahawk at 11:39 AM on September 28, 2014
It is not unusual for parents to sell land to their children for "$1.00, and love and kisses." Consult the attorney, please.
posted by halfbuckaroo at 1:47 PM on September 28, 2014 [1 favorite]
posted by halfbuckaroo at 1:47 PM on September 28, 2014 [1 favorite]
The answer: comlare (1) your dad's tax on sale with (2) the tax that the four of you would have to pay if it were gifted to you and sold it (this difference will be the result of brackets. There may not be a difference at all.)
If the aggregate savings is larger than the cost of transferring to you (transfer tax, legal work, etc), then he transfers to you first.
posted by jpe at 4:47 PM on September 28, 2014
If the aggregate savings is larger than the cost of transferring to you (transfer tax, legal work, etc), then he transfers to you first.
posted by jpe at 4:47 PM on September 28, 2014
It seems like deeding the land to a revocable living trust, then selling it and placing the proceeds in the trust, then splitting the trust in three might be a great way to both protect the money and ensure that legal arrangements are in place for where each part of the money should go if any of you were to pass away. It would cost a few thousand dollars in lawyer's fees, but it might be worth it. Talk to an attorney.
posted by limeonaire at 7:43 PM on September 28, 2014
posted by limeonaire at 7:43 PM on September 28, 2014
IANAL but I'm at that time in life where I've witnessed the passing of my parents and the parents of a number of friends, and I want to commend your father for wanting to get this over and done with before he dies. I've seen families squabble over inheritance issues - it is awful and sad. If y'all can wrap this up pre-mortem, do it.
posted by doctor tough love at 10:57 AM on September 29, 2014
posted by doctor tough love at 10:57 AM on September 29, 2014
This thread is closed to new comments.
By consulting with an estates and gifts attorney. I'm sorry, but this is really not a case where you can tell your family "some people on the Internet said this way was best." Your question is about the tax consequences of certain actions and for that you need legal advice from your attorney, not us.
posted by Tanizaki at 7:27 AM on September 28, 2014 [18 favorites]