We know that you can give up to pay $ 12,000 per person per year and never a federal gift tax - thanks to the annual gift tax exclusion. This is to give in writing in order when you are away or just cash a check. But how can you give someone a house or a business or anything else that money and not have it yet come under the annual exclusion gift tax?
Let's say you're parents have a condo in Florida that they bought several years ago for $ 100,000, and it is now worth $ 400,000. Now,they want to give it to you and your two sisters, because they are concerned about the new Medicaid laws and their property taxes.
Qualifying the entire $ 400,000 condo in the annual gift tax exclusion is not easy. First, it is difficult to real estate gifts in increments of $ 12,000. Sure, you can simply by dividing the value of the condominium ($ 400,000) by the annual exclusion amount ($ 12,000 in White 2006). In our example, $ 12,000 represents a 1/34th interest in the home, which means that any means of that yourParents could give you and all your sisters 1/34th interest in the home each year. At this rate it would take about six years to complete the transfer. If spouses were included in the annual gifts, then the time to transfer the entire condo about three years would be reduced. [Careful planning could reduce this time to 366 days by the first 31 transfers December, the second transfer to the next 1 January and the final transfer on 1 January nextYears.]
Seems pretty complicated, right? And it is. In addition to her parents every year a new instrument would need to prepare for each gift and each record would have on the land deed records. Plus, they will probably need a lawyer to take care of all of them. The cost for all the work, including hosting fees can considerably. Then, if all you want to sell the apartment, they should develop 34 different acts, with each owner Unsubscribeon the sale.
There is another problem - that is, you must make sure that your values are all correct. See if you give money, there is no queston what is the value of the gift. With nothing except the money, whether real estate, stocks, bonds, collectibles, etc., there is often no readily ascertainable value. So you must have the property evaluated by a qualified expert, so that the value is under the annual exclusion. There are rules to do so, and if younot comply, then the IRS can always a challenge to your value. If the value is found to be more than the annual exclusion amount, then you would have a gift tax return each year and possibly pay a gift tax file. Estimated to cost money and need each time a gift is made to happen.
Is there a better way to homes in the annual gift tax exclusion to transfer? Sure there is! No one wants the property in the way we transfer just discussed. It is simply too cumbersome and time-consuming, andexpensive. The preferred way to homes in the annual gift tax exclusion to use a transfer to a separate legal entity as a corporation or a limited liability company or a family limited partnership, to facilitate the transfer. My preference is a limited liability company (LLC) because it is easy to set up and inexpensive, and not the need for additional ongoing costs.
Here is how it works: First, your parents would be to create a company with limited liability. Let's Callit is the Smith family Condo, LLC. The LLC would be created with 34 units of membership ($ 400,000 / $ 12,000). Their parents would then be transferred to the LLC receive their condominium in exchange for all 34 units membership (the higher level units would be 17 members). Only one action is required if your parents transfer to the condominium LLC, and only one recording is necessary. Similarly, only one assessment is required to establish the value of the condominium at the time of transfer.
Well, if yourParents want to make a gift to each of you as part of their annual gift tax exclusion, all you have to do what it is, a membership transfer unit in the LLC. No further actions are required, no recording of documents is required and no legal fees are required. The transfers have reflected on the books of the LLC, but that's it. Not only does the LLC make it very easy to transfer the ownership of first place, it also makes it very easy to manage the assets and then sell them when theTime comes.
This is the preferred way to transfer real property or any other type of property to multiple recipients in the annual gift tax exclusion.
Next time: Is it so terrible if you go on the annual gift tax exclusion amount in a year?
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