Aging parents and a tax collector walk into an ADU...
April 8, 2021 6:23 PM   Subscribe

We want to have my parents move on to our property as they are aging and needing more help these days. They want to build an attached ADU on our property. What tax implications does this have?

We want to have my parents move on to our property as they are aging and needing more help these days. They want to build an attached ADU on our property. Say the ADU would cost 200K and they are going to pay for it (via gifting us the money). I’m aware of the gift tax and the lifetime exclusion (thanks Ask Mefi search) but I can’t find an answer as to whether there are other tax implications. Because they are paying for the ADU they won’t be paying for rent nor will they be paying the increase in our property taxes.

We are in the process of finding a tax expert to talk with but in the meantime could someone tell me if there are tax implications that we need to considering? Both to us, a property owners, and to my parents?
posted by teamnap to Law & Government (4 answers total) 2 users marked this as a favorite
Property tax implications could be huge and are going to depend on where you are... this is more of an AskLawyer question than an AskMetafilter question
posted by Jacqueline at 6:36 PM on April 8

Yeah this really depends on your city and state. But in many jurisdictions it would be pretty simple - the assessed value of your house would go up by some amount (maybe $200k, maybe more or less) and you would be taxed on the new assessed value of the home. You’ll still own the property, the property will just be worth more. How you got the money to pay for the addition or who’s living in it doesn’t generally matter for tax valuation.

Definitely worth talking to a lawyer about what kind of tenancy agreement you should have with your parents so that you’re all protected if someone wants to change the agreement down the line - eg if your parents want to or need to move out, or if you want to move, or whatever.
posted by mskyle at 7:03 PM on April 8

Maybe you’ve already verified that your local zoning laws allow new ADUs, but if not that should be your first step.
posted by Kriesa at 3:29 AM on April 9 [4 favorites]

Best answer: Look at your most recent property tax bill - it should give the tax rate per $1000 of assessment. (usually there are several different taxes, each with its own rate - just add them up) Multiply that total rate by 200 to get the additional tax bill.

Also, this is a gift with no strings attached. If you sell the house, your parents are relying on you to provide them living space in your next house. If you get angry and kick them out, they are no recourse (legally). If they die, that money would not be part of their estate and your siblings don't get any part of it. (Personally, if I were your sib, I would be fine with that - you'll be earning it via the care you are providing.) If your parents need Medicaid in the future to pay for nursing home expenses, the gift would part of the five year look-back but there is a good reason for doing it sooner rather than later.
posted by metahawk at 11:33 AM on April 9

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