Real Estate
Sponsored by

Tax Friendly Means of Purchasing Land from Family

3,737 Views | 29 Replies | Last: 5 yr ago by RanchAg
Daddy-O5
How long do you want to ignore this user?
AG
My in-laws have a piece of land that I am interested in purchasing. I am trying to figure out if there is a more tax friendly means of doing so rather than an outright purchase. If they "gifted" me a percentage of the property then I believe I would have to pay some sort of taxes on the value of the land (if over the 14k limit - which it would certainly be). If I (or anyone else) bought it outright then they would be subject to taxes on the sale.

I'm trying to figure out a way to do it (legally of course) where we both may benefit. They can sell/gift/whatever to me, and I can get the land for a little bit better deal.

Any ideas? Am I wrong anywhere so far?
Sooner Born
How long do you want to ignore this user?
Just one correction...they would pay the gift tax on the land, not you.

Long story short, the IRS rules around property sales/transfers/gifts are fairly air tight. Usually, the most cost effective way to go about it is to buy it for whatever your agreed upon price is and then make sure every possible cost (that's still valid/legal) is counted as an expense during the sale.
SteveBott
How long do you want to ignore this user?
AG
What is the value/price?

Are you married?
Daddy-O5
How long do you want to ignore this user?
AG
Married. And let's say for discussion purposes around 300k.
Daddy-O5
How long do you want to ignore this user?
AG
Thanks. And well noted in your correction, mistake on my part.
SteveBott
How long do you want to ignore this user?
AG
Ok with married couples both parents can give their 14.5k? Limit but that does not go far enough. I'd talk to a RE attorney
Daddy-O5
How long do you want to ignore this user?
AG
Follow up question, assuming the same facts in evidence (about 300k vaue), what kind of taxes would I owe if I inherited the land? None in Texas correct? Federal?
Ducks4brkfast
How long do you want to ignore this user?
AG
You need to wait until the pass and inherit the land.
jagvocate
How long do you want to ignore this user?
AG
Could you form an LLC with them and you put in some capital (sweat equity, $$$) and the land deeded over to the LLC is their input?

FinMick
How long do you want to ignore this user?
AG
IANAL but you could combine your two annual gift exemptions for 30K, and have them "finance" the deal and then forgive 30K in loans each year until it's "paid off".
Sooner Born
How long do you want to ignore this user?
J.D. c/o 05 said:

Follow up question, assuming the same facts in evidence (about 300k vaue), what kind of taxes would I owe if I inherited the land? None in Texas correct? Federal?


That generally depends on the size of the estate (their total net value) but the exemption is currently set at $10M per couple so unless they are loaded, there would be no taxes involved when you inherit the land.
Sooner Born
How long do you want to ignore this user?
FinMick said:

IANAL but you could combine your two annual gift exemptions for 30K, and have them "finance" the deal and then forgive 30K in loans each year until it's "paid off".


If the IRS catches wind of no intent to pay the loan, they will consider the property a gift at the time of transfer.
Buck Compton
How long do you want to ignore this user?
AG
SteveBott said:

Ok with married couples both parents can give their 14.5k? Limit but that does not go far enough. I'd talk to a RE attorney
Definitely talk to an attorney with experience in these matters. There are a ton of misconceptions, including on this thread.

The limit is 15k now anyway. Both family members could give 15k to each of you. Each year. So 60k per year. Untaxed. Not having to be reported to the IRS.

With Trump's new tax law, they wouldn't likely owe gift tax on any of the land even if they gifted you the entire thing. It would just be deducted from what they could exempt from their estate (up to 11.2 M).

Now, where you could get in trouble is if they were gifting you land in one lump sum above 15k, and you corresponded with a matching gift. IRS won't like that.

Here's a decent breakdown I haven't found many issues with. My best guess is to have them gift it to you (don't pay gift tax) and gift them cash each year over the next few years, but I'm not a CPA and this definitely isn't legal advice, hah. IRS probably has some airtight rule about an implied purchase.

https://smartasset.com/retirement/gift-tax-limits
gig em 02
How long do you want to ignore this user?
I do not know the details of how these things work but just a couple ideas for your googling pleasure: You may want to look into maximum lifetime gift amounts. Someone on another thread also mentioned owner financing for passing between family members.

Follow up with a lawyer or CPA and then let us know what they say. I would not depend on any inheritance exemptions, when the democrats regain control I wouldn't be surprised if they cut those out completely.
Mas89
How long do you want to ignore this user?
AG
You can buy the land for what the sellers are willing to sell it for. The sellers would pay long term capital gains tax, assuming they have owned it for more than one year, on the amount above their cost basis.

Land prices can vary greatly and you can get an appraisal done usually to support your agreed on sales price.
scrap
How long do you want to ignore this user?
AG
Also be aware that gifted property comes with the donor's cost basis. Compared that to inherited property which should qualified for a stepped up in basis and no income tax on property. Not legal advice as I'm not an attorney, for informational use only.
humperdink
How long do you want to ignore this user?
AG
Your in-laws can use part of their lifetime exemption, currently 11 mil +, to gift the property with not tax consequences; however, a gift tax return would have to be filed. A gift is separate property and most in your in-law's situation following a conversation with a competent attorney would gift the property to your spouse only. If the property is gifted there is no basis adjustment that would occur if it was inherited. You need to suggest your in-laws meet with an attorney and a cpa.
RanchAg
How long do you want to ignore this user?
AG
Do your in-laws need the proceeds from this sale for immediate use?
Daddy-O5
How long do you want to ignore this user?
AG
No they don't. Not to my knowledge.
RanchAg
How long do you want to ignore this user?
AG
I would definitely speak to a CPA.

I don't know the specifics of your situation, but if this is considered an investment property, there may be an opportunity for your in-laws to role the proceeds in to another investment property via a 1031 exchange. There are specific regulations covering this type of exchange, but it may be an option.

They bypass the capital gains on this sale and will have a step up in basis on the new purchase.
Sooner Born
How long do you want to ignore this user?
RanchAg said:


They bypass the capital gains on this sale and will have a step up in basis on the new purchase.


Not exactly. The bypassing of cap gains means their basis in the new property would be similar to what it was in the old property (that's over simplified but the point stands...).

A step up in basis happens when it's transferred at death.
JamesBREI06
How long do you want to ignore this user?
AG
Look into the lifetime exemptions on gifts. I'm not sure exactly how it works, but your in laws can give you far more than $300,000, but it plays towards the lifetime gift cap.
Whoop!
Daddy-O5
How long do you want to ignore this user?
AG
The next problem would then be giving them the 300k. I'm pretty sure the IRS would catch wind of, and frown upon me giving them cash (even within the legal annual limitations) after accepting the land from them.
Buck Compton
How long do you want to ignore this user?
AG
J.D. c/o 05 said:

The next problem would then be giving them the 300k. I'm pretty sure the IRS would catch wind of, and frown upon me giving them cash (even within the legal annual limitations) after accepting the land from them.
Agreed, which is why you should talk to a CPA and a real-estate attorney. That being said, 60k per year is under the reportable limit. IRS would have no way of knowing.
Daddy-O5
How long do you want to ignore this user?
AG
My next step. I've got a few things to hash out with my in laws to make sure we're on the page, then I plan on it.

I appreciate everyone's help/contributions to the thread so far.
ChoppinDs40
How long do you want to ignore this user?
AG
Could they transfer it to a trust that you will then inherit (and have access to in the meantime) and just pay them a tax free gift of cash until they gon' ?
coastalaggie
How long do you want to ignore this user?
AG
Interested in knowing how this works out as we are in the same situation.
Fair Winds and Following Seas
Daddy-O5
How long do you want to ignore this user?
AG
Going to spend a lot of time with the in laws this weekend. I'm going to try and gauge if it's worth pursuing a discussion with my CPA and a Real Estate Attorney. I hope to have some kind of update next week.
txaggie79
How long do you want to ignore this user?
AG
Generally, most "regular folks" don't need to worry about gift or estate tax. The "exclusion" is the amount per year that can be excluded from your gift and doesn't have to be reported. For 2019, the individual exclusion is 15k. For gifts in excess of the exclusion during any year, you have to report the gift to the IRS, but no tax is due until the lifetime gifts total over 11.4 million dollars, per individual, for 2019. For a married couple, these limits generally double. There is a great deal of misunderstanding about gift and inheritance tax. BTW, any unlikely gift tax would be paid by the donor, not the recipient.
Turf96
How long do you want to ignore this user?
This whole thread makes me sick. If a family owns the land why would the government need to tax anything as it was paid in the beginning? Inheritance or family gift tax should be illegal. I don't care if somebody is getting 100 trillion. If they earned it and paid taxes on it then it is theirs or their families. Next thing you know when I die they will come audit my closet so my kids can't have any nice clothes. This country is fast becoming no better than the rest.

Sorry carry on with good advice as I may have to deal with this some day. Just burns my a$$
RanchAg
How long do you want to ignore this user?
AG
I think he is concerned about cost basis and taxes to his in-laws if he purchases it outright. More than just potential gift tax concerns
Refresh
Page 1 of 1
 
×
subscribe Verify your student status
See Subscription Benefits
Trial only available to users who have never subscribed or participated in a previous trial.