USA Inheritance/gift

[Vegastud]

Situation:

Parent dies. Parent leaves 2 heirs 50 percent each a non residential property valued at $200,000.

-Heir #1 gifts Heir #2 their 50% of property.
-Heir #2 gifts Heir #1 $100,000.

Is this legal? Is this a sale of property as opposed to gifts??

 

[kirby]

If you would like someone in the forum to assist you, you really need to expand the above question so it is more understandable as to what you are asking.

 

[MoralesTax]

Given that your scenario has a "quid pro quo" or "something for something", in the eyes of the IRS, it would be deemed a sale and should be reported as such.

Fortunately, not only is this the correct way of doing it but also the tax option that makes better sense. This is because both heirs received the property because of the parent's death. They now get to enjoy what is known as a "step-up" in basis. This means that since they both received 50% of the property and it is worth $200,000 as of the date of death; then they each have $100,000 basis to allocate towards the sale. Therefore, if Heir #2 sells his/her share of the property for $100,000; they effectively pay no taxes on it, as they will not show a gain on the sale of the property.

If you were to "gift" it (again, this is the wrong method, but for illustration purposes), then Heir #1 would need to unnecessarily file a Form 709 Gift Tax Return, showing this transfer.