My very generous and kind mother-in-law, who lives across the country in CA, wants to give us a 5 bedroom house, that she and my father-in-law used to live in. He has since passed away, and now this house is being rented to an assisted living facility and is managed by my brother-in-law. My mother-in-law lives with my brother-in-law who manages this 5 bedroom house.

I think my mother-in-law hopes we'll move into this house and live close to her, but that is unlikely to happen. I think we would just hold onto the house, keeping it as a rental, and selling it, once she passed away.

From a tax perspective, I think it best, she should leave the house to us in her will, or maybe set up a Irrevocable Medi-Cal Trust, instead of giving it to us now. However, she wants to give us the house now and I'm thinking my wife and I should just go with her wishes. It would be a very nice gift :-)

Right now, I have an umbrella policy to cover my current rentals, and I'm thinking the new house would fall under the umbrella policy (better check that). I am concerned, the house currently being rented to an assisted living facility, that I may be taking on a large liability.

Do you have any thoughts on this? Thanks if you do!

BillW, It is better for her to gift this house to you now than it would be for her to will it to you. As I understand medicare will claw back med bills for the final 5 years of life.

Perhaps, it would be advantageous for you(so as to avoid inheritance tax) to purchase the property with very generous terms.

Thanks Sisco! I was unaware of inheritance tax, but I see in NJ, it's substantial. I think it counts for gifts given within 3 years of passing away.

Have her check Ca Prop 19 new transfer law. She may need a Ca tax knowledgable lawyer to get it to you without her haveing to pay out of this world Fed & Ca gift tax. Don't forget Biden's new tax MAY eliminate the step up bases ( which affects a new owner) & MAY decrease the gift tax threshold ( which would cause a gift tax), MAY add capital gains tax to the gift house value ( which would cause an immediate Fed & Ca tax) & MAY add an increased immediate payable estate tax to the house transfer.

So you both MAY end up paying a lot on transfering title. For sure, as Ca law now stands, property tax will immediately be based on current market value ( which in Ca is outragously high), not the market value when she bought the house many years ago.

They want to give you a house in CA that is a facility. The mother in law and bro in law live there in CA and she lives with him.

Thanks Coplin, I hadn’t considered that either, Prop 19. I was looking at some houses sold in the area and I can see how there assement goes up after sale.

As for the gift tax, my understanding is that it doesn’t kick in unless you are gifting like 5-10M, which I’m not close to. Please tell me if I’m wrong on that.

Still Learning, I planned to give my brother-in-law 10% of the rent or whatever is appropriate, for managing the property. Makes me think though, I wonder if I should consider hiring a management company?

Allym, my inlaws don't live at this house. I know the gift may sound unusual, but I've known these persons for 25 years and know they are good folk.

There is something in CA that the low tax rate is inheritable. I'm not in California, so haven't found out how it works, but my sister inherited my mother's house and kept the low taxes along as she transferred title within so many months of the death.

Maybe the tax rate stays in the family if she transfers titles to you?

Oregon Woodsmoke, interesting rule on inheriting property tax rate. I just read in 2020, Prop 19 in CA has limited that benefit, that only if a child lives in the house within one year of the parent's passing, does the tax assessment stay the same.

BillW [NJ], your correct the life time estate gift tax exemption is right now is 11.58 M, but Biden's new law MAY & I stress MAN, change this to 3 to 6 M. It MAY also eliminate the step-up-basis, so I would not count on using this if you wait to inherit.

Depending on how the Fed law turns out, if the house gift is 2M ( which in Ca is not unusal ) & later estate sends you 2 M you could be taxed.

Additionally, as I understand the yet to be passed law, there would be a capital gains tax on the assested gift value exceeding basis cost. And the capital gain tax would about double if income exceeds some yet to be determined threshold value.

Right now however, as per Ca law, any transfer WILL increase the property tax to be based on the current market value, unless your (her child) make it your primary residense, within 1 yr.