As parents, we always want to give our children the best possible things. A house is one of the most significant investments a person can make, and it is very common to want to gift it to children so they can reap the benefits of it. However, it is important to understand the legal and financial implications of gifting a house to your kids, particularly in California. In this post, we will discuss the tax implications of giving your house to your kids and why it might not always be the best idea.
When gifting a house to your children, it is important to consider the legal and financial aspects of the process. There are various documents that must be in place, and you must factor in expenses such as property taxes. Consulting with a legal expert can help you navigate the process and avoid any unexpected issues that can arise.
Timing is another crucial aspect to consider before gifting a house to your children. You need to weigh your options and decide whether you want to gift the house during your lifetime or post-passing. Gifting the home now can provide you and your children immediate satisfaction, but it can have significant tax implications in California.
The tax implications of gifting your house to your children in California can be harsh. Under California law, property is reassessed unless certain exemptions are met, which can trigger increased property taxes. The reassessment can result in a property tax increase of 60-70% of the property's current value. This can be massive, particularly for older homes that have appreciated significantly in value.
It's important to note that not all gifts are taxed equally under California law. Gift taxes are only imposed on gifts exceeding a specific value. As of 2021, the annual exclusion amount is $15,000. Any gift valued at less than $15,000 per year per person will not require a federal gift tax return. However, for larger gifts, you will need to file gift tax returns.
Another aspect to consider is that gifting the house to your children while you are still alive may eliminate the possibility of a step-up in basis. When the house is sold, capital gains taxes will be calculated based on the original purchase price, which could mean significant tax payments.
Before gifting your house to your children, it is vital to consider the legal and financial implications of the process. In California, gift taxes can be severe, and there can be harsh tax implications such as property tax reassessment triggered by the gift. It's important to consult with legal experts to ensure all the necessary documents are in place, and you have considered every possible scenario, particularly when it comes to timing. As a parent, we want to provide the best for our children, but we also must make sure that we protect our assets and ensure our children do not face any unforeseen financial or legal issues.
We know that your family is the most important thing to you. We offer unparalleled estate planning services so you can plan for their future. We draft and create wills, rusts, and directives and can amend any part of your will or trust if you decide to make a change.
Regardless of the state of life you are in, you should be thinking about the future. We can help you make informed decisions that will give you peace of mind. Contact our office today for a consultation.
