Legal Question in Real Estate Law in Georgia

Capital Gains Tax
My dad ( 90 yrs. old. in good health as far we we know) gave me his resort rental property condo on Sanibel Island, Fl. in 1999, rather than wait and have me inherit it. ( it is the most value in our family. liquid assets are $200,000.00)
I am an only child, who will inherit everything. When he purchased it in 1975, cost was $65,000.00. Value now is $550,000.00. I am using it as a rental. I am concerned about the capital gains tax, or any other taxes I will owe, if I sell while my father is still alive. Would it be smarter to sell it back to him ( for $10, etc) and have him put it back in his will for me? Then if I decided it needed to be sold, HE would be selling it and not have to pay capital gains tax on the difference between $65,000. and $550,000. as I would if I keep it in my name and sell. Right? If I sell it now, and my father is alive or deceased, wouldn't I have to pay much more to uncle Sam, than if I just sell it back to him or give it back, ??
What is the best way to handle this piece of property to avoid paying all those taxes? Then, if I 'inherit' the condo...then sell...wouldn't I avoid paying thousands in taxes?? Thank you.

Asked on 2/18/06, 3:13 pm

3 Answers from Attorneys

Wayne Wisong Wayne Wisong, Attorney at Law

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Re: Capital Gains Tax

Tax is an area of concentration for me so I will take a stab at some of your question. By doing things the way he did, your father avoided probate costs and inheritance taxes, but not likely much, if any, estate and gift tax at that level (unless he has given many other large lifetime gifts). But, by deeding it to you before he died, he also missed a chance to give it to you with what is called a "stepped up basis" to $550,000 in your hands. Instead, you took it with a $65,000 "carryover basis" which is what his basis was. The capital gain will be the difference between the sale price and your basis.

Deeding it back to him now for less than FMV could only make things worse if he doesn't at least live another year. At best it won't help from a capital gains standpoint.

There may be some strategies to help here, but I do not handle tax cases on an unpaid basis. But, hopefully this information will help you focus on the problem. If you would like further assistance, please feel free to contact me.

Answered on 2/21/06, 9:35 am

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