Your home is likely one of your most expensive assets. You have saved for years and have made countless mortgage payments to ensure that your home is yours to keep. At some point, you may begin to think about how to pass your home to your children. There are various options when it comes to giving your house to a family member. Not all options are the same, and some have high tax obligations. You will want to find the best way to give a house to a family member while minimizing gift, estate, and capital gains taxes.
Put Your Home in Your Will
One of the easiest and most straightforward ways to give your home to a family member is by leaving it to them in your will. When you pass away, your property and assets get distributed to your beneficiaries according to your wishes. Generally, this option does not require capital gains taxes. Wisconsin does not have estate taxes. However, if the total amount of your estate exceeds the federal exemption (currently about 12 million), your beneficiaries will have to pay taxes.
Put Your Home in a Trust
One way to avoid probate tax is by putting your house in a trust. A trust holds your property until your death when it transfers to the heirs. There are two main types of trust, including revocable and irrevocable. A living trust is revocable, which means that you still have control over it and can make changes. An irrevocable trust transfers property directly to the trust, and you cannot make changes. There are some advantages and disadvantages to both types, so it is best to discuss the matter with your attorney before you make the decision to put your home in a trust.
Add Your Family Member to the Deed
An option for giving your house to a family member is to add them to the deed. This means that they are equal owners of the property. There are some downsides to this choice. First, the family member has a voice in how the property is used and whether to sell it. The portion of the house that you give away is a gift, and therefore, you will have to pay gift taxes on it. Also, when the family member wants to sell the property after your death, they will have to pay capital gains taxes. Another similar choice is to give your family member the home now.
Sell Your Home to Your Family Member
You may opt to sell your home to your family member. You can sell the home at any price you desire, even at a price that is far below market value. You may even opt to finance the home yourself. It is important to know that you will need to pay gift tax on the price difference between the market value and the sale price of the house. Also, if you choose to forgive the debt, it becomes a taxable gift. If you still have a mortgage on the property, you will need to pay it off in full when you sell your home to your family member.
There are many things to consider when you want to give your house to a family member. Every situation is unique, so it is best to discuss the matter with a qualified attorney. To learn more about how to give your house to a family member, call us at Moen Sheehan Meyer, Ltd. at (608) 784-8310 or contact us online to schedule a consultation.