April 19, 2024

19 Apr 2024 · 1 min

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In this estate‑planning segment, Jerry Taylor cautions parents and adult children against transferring a family home for a nominal $1 price. He explains that the child buyer would be liable for capital gains tax on any appreciation of the property unless they have lived in it for at least two years, using a $200,000 purchase price rising to $500,000 as an example that could trigger up to 20% tax on the $300,000 gain. Taylor contrasts this with inheriting the home through a will or a trust, noting that inheritance provides a step‑up in basis (eliminating the capital gains liability) and that a trust can bypass the time‑consuming and costly probate process. The overall message is to use proper estate‑planning tools—wills or trusts—rather than informal $1 sales to avoid tax and probate pitfalls.

Chapters

Do not let your parents sell you their house for a dollar. There are many issues with doing this, but the biggest one for you as the buyer of the home is capital gains tax. When you sell that home, unless you've lived in it for 2 years, you will be responsible for paying capital gains tax on the increase in value of that home from when your parents bought it to when you sell it. So if your parents bought that house for $200,000 and now it's worth $500,000, you will have to pay capital gains tax on the $300,000 increase in value. And that tax could be as much as 20% of the profit or more. Now, if you sell that same home, having inherited that house through a will or a trust, And if you inherit it through a trust, you will totally avoid the expense and time wasted through probate.