My mom and dad are in the process of estate planning and writing of wills.

They own some land that was purchased nearly 30 years ago for maybe $100k-$150k. Now it has a house on it and is probably worth $800k-$1 million.

My brother and I are the only heirs.

How can we inherit this property without being taxed on the gains from then until now?

There's tons of information on the interwebs but I'm not sure what to trust.

TIA

Inherit after they eventually pass, or are you wanting it prior to the, but while preserving step-up in basis?

If after one of them passes, easy-peasy unless they own in a trust or other entity that wouldn't be eligible for step-up.

Casey TableTennis said:

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Inherit after they eventually pass, or are you wanting it prior…

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Probably after they pass, but there's a chance that Mom might give it to us if Dad passes first.

Past that, I'm not sure I understood the rest of your post.

Assuming they just own in their name, not an entity…

They should get a step-up in cost basis at first death. It could be gifted to you after first death (or transferred via will after first death) and the property would pass to next generation, no gain.

There are scenarios with entities where a step-up won't happen. Likely the above describes your situation.

If they hold to second death, there could be a second step-up, assuming it doesn't go into a bypass trust after first death.

There's no entity or trust.

*I didn't clarify before, but this is all in Texas. - in case that matters

But now I've thought of a different question….

If Dad passes first, and then Mom decides to sell everything and move to live closer to us, is there any way to avoid a massive taxable event for her? Maybe if she uses the proceeds of the land sale to purchase other property right away?

Thanks again.

tsuag10 said:

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There's no entity or trust.

*I didn't clarify before, but this is all in Texas. - in case that matters

But now I've thought of a different question….

If Dad passes first, and then Mom decides to sell everything and move to live closer to us, is there any way to avoid a massive taxable event for her? Maybe if she uses the proceeds of the land sale to purchase other property right away?

Thanks again.

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I assume the property is community property? If not, then other caveats may apply.

If community property, the property would get a step up in basis upon your Dad's death, your mom would have no gain if she sold things (assuming she did so within a reasonable time after he died).

The use of the proceeds to buy other property right away would fall under the 1031 exchange rules and would need to be handled in a certain way and with certain time restrictions. But with the step up in basis, she likely would not want to exchange one tract of land for another.

You mentioned a house on the property. If it was there personal residence and they meet certain requirements, up to $500,000 in gain could be excluded. But with the step-up, that is sort of a moot point.

I wasn't familiar with the term "community property" and after some brief reading, I'm not entirely sure I know much more.

The land is private agricultural use land with their homestead on it. It was purchased after they were already married. Not sure if it's technically just in Dad's name only, but I'd bet that both of their names are on the property.