Legal Question in Real Estate Law in Virginia

Re: property

This is really a tax question rather than a real estate question. You might want to speak to a CPA or at least post the question under the tax section.

I believe, not sure, that you will face the tax question either way. If your parents put your name on the deed now, this will count as a gift.

Gift taxes are specifically designed to prevent people from evading inheritance taxes. So gifts are treated as sort of inheritance in advance, to catch people from evading inheritance tax.

HOWEVER, it can still be better (or maybe worse) to get the house now. That's because the value of the gift would recognize that you are not getting the house now, but only in the future, and you are not getting the entire house now. So the value of the gift for tax purposes would be LESS TODAY than later on during inheritance.

On the other hand, as Michael points out, if you inherit the property, you get the "stepped up" tax basis.

So, scenario #1:

You get the house at your parents' passing and then immediately sell it. You pay NO taxes on the sale from the "stepped up" basis, because there isn't time for the house to increase in value before you sell it. The sales price is the same as the "stepped up" tax basis measured at your parents' death. Your "cost" in the house (as if you had bought it) is the same as the then-current market value.

Scenario #2: You inherit the house and keep it for several years. Then you sell it after it has gone up greatly in value. You only pay capital gains tax based on the value when your parents died.

Scenario #3: You are added to the deed now. The house increases in value before your parents die. Then you sell it. You will pay capital gains tax based on how much it went up from TODAY until the time you sell it.

So which is better really depends on what you plan to do with the house, whether home values go up or down, etc.

Also most people will never pay any inheritance tax, and no gift tax either. So you may be worrying about nothing.

Re: property

Virginia does not assess inheritance taxes, but in order to receive the step up in basis to avoid substantial federal capital gains taxes on this property, you must inherit the property from your parents rather than receive it as a gift prior to their respective passings.