Legal Question in Real Estate Law in Texas
Gift Deed Pitfalls - TEXAS
My mother-in-law who retired a few years ago and is on a limited income wants to give her only child the land that has been in their family for generations as a gift.
If she uses a gift deed for the transaction, will there be adverse tax penalties or other effects of doing so on her or her son?
2 Answers from Attorneys
Re: Gift Deed Pitfalls - TEXAS
The penalty would come in the form of capital gains tax down the road. If the property has appreciated substantially in value, then when it is sold child would pay taxes based on the original basis. If it is taken by inheritance, then basis is stepped up at time of death to the current market value and little, if any, capital gains taxes will be owed if it is sold soon thereafter. If you still want to deed, use a General Warranty Deed so as not to void any current title insurance coverage.
Re: Gift Deed Pitfalls - TEXAS
May I add that there may be federal gift tax consequences to the mother if the value of the property exceeds $10K or the mother has already exhausted her lifetime gift tax exemption? You may wish to check with your tax-adviser on both topics of gift tax and capital gains tax.
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