Gifting home to family involves complications

Q: My father bought a house many years ago that is fully paid off. He wants to gift it to me. What are some of the tax consequences and other considerations we should think about? — Nancy R. A: First of all, gifting a home may be problematic for your pop if he needs Medicaid coverage in the near future. That’s because Medicaid has a five-year “look-back” period to determine if applicants have transferred off any major assets to become eligible.

A penalty in the form of a multiple-month delay in coverage could be assessed against him.

If we assume the average monthly cost of nursing home care in your state is $6,000, then Dad would have to wait years for Medicaid to kick in.

For example, if he transferred a $240,000 house to you on May 1, 2017, and unexpectedly needed to move to a nursing home on May 1, 2018 and spent down his remaining assets to become Medicaid-eligible on May 1, 2019, that’s when the penalty would begin.

It’s duration in this case would be 40 months ($240,000/$6,000 = 40), meaning he wouldn’t become eligible for coverage for three years and four months. You will definitely need to talk with a qualified estate or elder law at- torney or financial planner if you think he may need Medicaid at some point.

Would he incur a gift tax?

If not, gifting a home makes more sense, assuming he hasn’t already given away millions. While a person giving away property valued at more than $14,000 in a given year must file a gift tax form, that gift will only be taxed if it causes him to exceed or further exceed his lifetime federal individual estate and gift-tax exemption limit of $5.49 million (up from $5.45 million last year).

So unless your dad is relatively wealthy and has gifted enough in his life to exceed that threshold, he won’t incur a gift tax by giving you the house.

But you should also know that if you were to sell the place quickly after receiving it as a gift, you would face a hefty capital gains tax. That’s because when a home is given away, its original cost to the giver — its “tax basis” — becomes the recipient’s tax basis unless that recipient lives in it for at least two years before selling.