Consider several factors when transferring ownership

Q: My senior parents are about to put their house in my name. What are the tax implications for me, other than annual property taxes? Is this considered a gift that I have to claim as income? — M.

A: First, property taxes: Your folks could continue paying them if they wish, though they couldn’t take them as income-tax deductions because they wouldn’t be legally responsible for them.

Next, gift taxes: Your state doesn’t have any, and a gift isn’t considered taxable income. The IRS said your folks can give you up to $14,000 a year with no tax consequences. Anything beyond that is deducted from what they could leave free of estate tax. That’s currently more than $5 million. But there’s probably nothing to worry about there, either.

Then, when and if the house is sold, there’s capital gains tax. If your parents have lived in the house and owned it for at least two of the past five years, they can use the home seller’s exclusion to sell and take up to $500,000 of the profit free of income tax. You, on the other hand, would not have that right, unless you were also living there for those two-plus years.

Once you own the house, if it is sold, your profit will be subject to capital gains tax. If you receive the house as a gift, you also take over your parents’ cost basis and owe tax on the profit they would have made. If you wait to inherit, on the other hand, you receive a stepped-up basis, valued at the time of death. Sell for about that amount with no capital gains tax.

One other complication: If your parents are trying to divest themselves of assets in order to qualify for Medicaid assistance, they should know there’s a five-year look-back. Medicaid will still count the house as their asset for five years after the transfer. You and your folks probably could use a lawyer who specializes in estate planning. A professional who can ask about your situation and what you’re trying to achieve will have the best advice.

Q: My father has a beautiful building site he is willing to let me have. Can you build on property you do not own? To be fair to my siblings and the IRS, I have proposed to include a letter that I owe his estate upon his death. — M. T. M.

A: Yes, you could build there. But if your father still owns the land, anything permanently attached becomes part of the real estate and belongs to your father.

A lawyer or a CPA may have a suggestion that would be fair to both you and your siblings. Perhaps, for instance, ownership of the lot could be transferred now and your father’s will modified accordingly.