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The perils of income taxes when properties are gifted

The holiday season and first of the year are when many people think about how to position themselves to pass on their property when they pass away. With the fear of massive estate taxes looming, some people may consider gifting their property through existing laws in order to spare their beneficiaries the financial pain of paying taxes.

For example, if a party has a home worth $500,000, they may feel as if they can save their beneficiaries a great deal of money by gifting their home. However, as described in a recent Newsday.com article, gifting may not create the tax advantages one may expect. In fact, it may even cost the beneficiary more money.

This is because the income tax the beneficiary may realize by selling the home may be much more severe than the inheritance tax. This is especially important if the house had gained in value between the time it was originally purchased and the time it was sold. This is because the capital gains tax would be based on the amount of appreciation.

These subtle (yet important) nuances are important enough to justify a conversation with an experienced estate planning attorney. A skilled lawyer would be able to explain several different options for parties to pass on assets to beneficiaries while protecting the financial interests of everyone involved. After all, for people who are in the position to give away assets, they still must have money to live on before they pass on.

If you have questions about the different taxes that may arise through gifting, an experienced estate planning attorney can help. 

Source: Newsday.com, Inheritance tax shouldn’t compel parents to gift children a home, Tim Grant, October 27, 2013

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