More On Buying With Parents
What are the advantages and disadvantages to parents purchasing and then Quit Claiming to child and maintaining a Life Estate, as opposed to joint purchase? What are the tax implications?
Thanks,
Kristi
No, there is no tax advantage to you. Your cost basis will be the same whether you buy outright or your parents gift you the property.
For estate planning purposes, consider asking your parents to buy the property then place it into a living trust with you as the beneficiary. Upon your parents death, you inherit the property. Under the law in effect today, the cost basis of the property you receive will be the property's appraised value. If you should decide to sell the property immediately after you inherit, you will most likely have a zero capital gain tax liability because your cost basis will most likely be your selling price.
For your parents, this arrangement avoids gift tax issues as well. If they just quit claim you the property (albeit with a life estate) they are making a gift of equity. Any gift amount that exceeds the federal gift tax exclusion must be reported on a federal Gift Tax Return. Additionally, their state tax rules may also have some gift tax reporting requirements.
For example, my parents live in NC. Under the federal tax rules, they can each gift up to $1,000,000 during their lifetime before federal gift taxes will be assessed. NC state law has a $100,000 lifetime cap before state gift taxes will be assessed.
The living trust also avoids another issue that may arise with the quit claim deed approach. Namely, what if you pre-decease your parents? Under a living trust, your parents only change the beneficiary. Under the quit claim deed, the property has to go through probate and the provisions of your will dictate the disposition of the property. In the absence of a will, the state's intestate laws determine the disposition of the property.
These issues are not really income tax issues, but rather estate planning issues. I am not a lawyer. An estate planning attorney licensed in your state, is better equipped to address this question.
What about Family Limited Partnerships? These do a better job at protecting the limited partners from lawsuits as well as allowing the general partner to do more things with the asset and/or any distributions that need to occur.