February 18, 2025 • 11 mins
In today’s program, Tom explains how deeding your home to your children during your lifetime can end up costing your children a 20% Capital Gains tax when your home is sold.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:30):
Well, good afternoon, Michiganers. It is FEPUWAREYV eighteenth, twenty twenty five,
and it is frigid outside. Of course, this is Tuesday
with Tom, Michigan's only weekly internet show where we do
answer your questions about estate planning and a state settlement
(00:52):
in Michigan, and we don't send you a bill. I'm
your host, Tom Doyle, a state planning attorney, lifelong Michigan resident,
an ambassador for all things good in this great state
of Michigan. Welcome, Welcome to today's program. Well, the last
episode talked about whether or not your revocable living trust
(01:17):
needs a new tax ID number, a question we get
from clients all the time. So if you have a
revocable living trust and you're asking yourself, do I need
to go out and get a new tax ID number?
I would recommend that you listen to our last episode. Today,
(01:38):
I'm going to talk about something that frequently comes up
working with some clients right now, where this essentially came
up in the conversation when we looked at what the
clients were considering doing, and that is we're going to
talk today about how you can save your children from
a twenty percent capital gains tax on your home. But
(02:01):
please remember that what I'm i about to discuss during
the program is, as always for educational purposes. It is
not intended to be legal advice. You need to work
with your attorney and your tax advisor to determine what
is appropriate for you how to save your children from
(02:29):
a twenty percent capital gains tax on your home. So
let's say your child comes to you one day and says, hey,
I think what you should do is you should deed
your home to me in order to avoid probate when
you die, or perhaps you're looking at your state and
(02:50):
you're thinking, wow, why don't I ded the home to
my child now rather than waiting for them to own
it until I die. Well, here's what you need to understand.
If you do that, if you give your home to
your child before you die, basically what you are doing
(03:12):
is you are passing on to your child your basis
in your home, that being what you paid for it,
plus a number of improvements that you might have made
for it during the time that you've owned it. But
essentially you are passing on to your child that basis.
And what does that mean. Well, it means when they
(03:33):
sell it. If they make more from the sale than
the basis and the property, then they are going to
pay a capital gains tax on the difference between what
it's sold for and what your basis is in the home.
And today most for most people, capital gains tax is
(03:59):
going to map out at twenty percent, depending upon what's
your income. So let's use an example though. All right,
Let's say that you have a home that you bought
a number of years ago twenty thousand dollars. That's a
long time ago, but it could be that you've owned
this home for a very long time. And let's say
the home is worth now, just conservatively, it's worth one
(04:21):
hundred and twenty thousand. If you give that home to
your child, what are you doing. You are passing on
your basis in that home, and in this case, your basis,
because we haven't factored in any improvements, et cetera, the home,
your basis is twenty thousand. So if your child turns
around and sells at home at one day for what
(04:45):
it's worth today one hundred and twenty thousand dollars, they're
going to have one hundred thousand dollars capital gain. And
if you look at twenty percent potentially being the tax
on that. That's essentially a twenty thousand dollars tax bill
that you're passing on to your children. Now, why does
(05:06):
that become important? Well, that becomes important for this reason
if your child does not own the home until you die,
whether it's they're going to receive it through probate, maybe
you have a will, or they're going to receive it
through a trust, or maybe you're going to use something
like a Ladybird deede that's going to transfer your interest
(05:28):
in the home to them when you die, They under
current federal law, get a stepped up basis. And what
does that mean? Their basis in that case is what
is a home worth on the day that you died.
So in that exact same example, let's say the home's
worth one hundred and twenty thousand, you die, your child
(05:52):
receives a home either by virtue of your will or
a trust or a lady birded, but they don't receive
it until you have have died. Their basis in this
example is now going to be one hundred and twenty
thousand dollars. They sell it for one hundred and twenty
thousand dollars. Their potential capital gains tax is now zero.
(06:17):
So if you're thinking about if your child is saying
to you, hey, why don't you give me the home now?
Or you're thinking about your estate plan and you want
to give the child your home, and it doesn't have
to just be your home. It could be any talk
about any real estate that you're talking about here, ask
your child do they does he does she want to
(06:41):
pay potentially a twenty percent capital gains tax on that home?
Or would they rather receive the home as part of
an inheritance and have zero capital gains tax? If in
(07:03):
the end they say, hey, I would rather inherit the
property than own it now, maybe maybe you'll even convince
your child in that case, how about you paying for
me to have a trust prepared or perhaps a Lady
Bird deed prepared that will accomplish that. So if you
(07:31):
have any other questions, any still questions about determining how
best passed a home to your child without the capital
gains tax, please reach out to us. And I know
(08:05):
that's kind of a brief episode, but it's important. It
was something that has come up in conversations with clients today.
I hadn't talked about it for several years, so I
thought I would update you on that discussion. Of course,
so Aman and I. If you have any questions about
that making that gift to your child, or if you're
(08:26):
looking to have an estate plan prepared for you or
amending a plan that you have, or assisting you in
settling your state, please reach out to us. Head on
over to DOYLELOWPC dot com. There you're going to find
all information on how you can schedule in consultation off
in consultation at our offices, be that Grand Rapids or
(08:48):
in Lancing Now, or perhaps a virtual consultation via zoom
or telephone. Also remember to if you're simply looking for
an individual document, you will likely find that available in
our legal store, which again is at DOYLELAWPC dot com.
(09:12):
But I think realize it's a pretty short show today,
but I think that's going to be it for today's show.
But as always, if you have a comment about the program,
a topic that you'd like to have me discuss, or
questions that you'd like to have answered, head on over
to Tuesday with Tom dot com. Leave a voice message
by clicking on the microphone, or alternatively, send me an
(09:35):
email that would be Tom at Tuesday with Tom dot
com and please follow us on Facebook. Invite your friends
and family to follow us on Facebook. That's going to
be Tuesday with Tom and follow the office at DOYLETPC,
and don't forget join our email list. When you're at
the website, you can subscribe to our email list, or
(09:55):
you can if you go to DOYLEPC, you'll have an
opportunity to sa subscribe to our email there as well.
But remember two Tuesday with Tom is available on probably
wherever it is that you normally listen to your podcast
Apple Podcasts, Spotify, Amazon Music, Google Podcast, iHeartRadio speaker and
(10:17):
you can always ask your smart speaker to play Tuesday
with Tom. Well, thank you again for spending some of
your time with us today and as always, I hope
that you have an awesome day and an awesome week
in Michigan. Stay safe and stay warm. Tuesday with Tom
(10:45):
has been brought to you by the estate planning attorneys
at Doyle Law PC. To learn how we can help
you with your estate plan or with settling a loved
one's estate, please call us today at five one seven
three two three seven three six six. That's five one
seven three two three seven, three six six mm hmm
Well, good afternoon, Michiganers. It is FEPUWAREYV eighteenth, twenty twenty five,
and it is frigid outside. Of course, this is Tuesday
with Tom, Michigan's only weekly internet show where we do
answer your questions about estate planning and a state settlement
(00:52):
in Michigan, and we don't send you a bill. I'm
your host, Tom Doyle, a state planning attorney, lifelong Michigan resident,
an ambassador for all things good in this great state
of Michigan. Welcome, Welcome to today's program. Well, the last
episode talked about whether or not your revocable living trust
(01:17):
needs a new tax ID number, a question we get
from clients all the time. So if you have a
revocable living trust and you're asking yourself, do I need
to go out and get a new tax ID number?
I would recommend that you listen to our last episode. Today,
(01:38):
I'm going to talk about something that frequently comes up
working with some clients right now, where this essentially came
up in the conversation when we looked at what the
clients were considering doing, and that is we're going to
talk today about how you can save your children from
a twenty percent capital gains tax on your home. But
(02:01):
please remember that what I'm i about to discuss during
the program is, as always for educational purposes. It is
not intended to be legal advice. You need to work
with your attorney and your tax advisor to determine what
is appropriate for you how to save your children from
(02:29):
a twenty percent capital gains tax on your home. So
let's say your child comes to you one day and says, hey,
I think what you should do is you should deed
your home to me in order to avoid probate when
you die, or perhaps you're looking at your state and
(02:50):
you're thinking, wow, why don't I ded the home to
my child now rather than waiting for them to own
it until I die. Well, here's what you need to understand.
If you do that, if you give your home to
your child before you die, basically what you are doing
(03:12):
is you are passing on to your child your basis
in your home, that being what you paid for it,
plus a number of improvements that you might have made
for it during the time that you've owned it. But
essentially you are passing on to your child that basis.
And what does that mean. Well, it means when they
(03:33):
sell it. If they make more from the sale than
the basis and the property, then they are going to
pay a capital gains tax on the difference between what
it's sold for and what your basis is in the home.
And today most for most people, capital gains tax is
(03:59):
going to map out at twenty percent, depending upon what's
your income. So let's use an example though. All right,
Let's say that you have a home that you bought
a number of years ago twenty thousand dollars. That's a
long time ago, but it could be that you've owned
this home for a very long time. And let's say
the home is worth now, just conservatively, it's worth one
(04:21):
hundred and twenty thousand. If you give that home to
your child, what are you doing. You are passing on
your basis in that home, and in this case, your basis,
because we haven't factored in any improvements, et cetera, the home,
your basis is twenty thousand. So if your child turns
around and sells at home at one day for what
(04:45):
it's worth today one hundred and twenty thousand dollars, they're
going to have one hundred thousand dollars capital gain. And
if you look at twenty percent potentially being the tax
on that. That's essentially a twenty thousand dollars tax bill
that you're passing on to your children. Now, why does
(05:06):
that become important? Well, that becomes important for this reason
if your child does not own the home until you die,
whether it's they're going to receive it through probate, maybe
you have a will, or they're going to receive it
through a trust, or maybe you're going to use something
like a Ladybird deede that's going to transfer your interest
(05:28):
in the home to them when you die, They under
current federal law, get a stepped up basis. And what
does that mean? Their basis in that case is what
is a home worth on the day that you died.
So in that exact same example, let's say the home's
worth one hundred and twenty thousand, you die, your child
(05:52):
receives a home either by virtue of your will or
a trust or a lady birded, but they don't receive
it until you have have died. Their basis in this
example is now going to be one hundred and twenty
thousand dollars. They sell it for one hundred and twenty
thousand dollars. Their potential capital gains tax is now zero.
(06:17):
So if you're thinking about if your child is saying
to you, hey, why don't you give me the home now?
Or you're thinking about your estate plan and you want
to give the child your home, and it doesn't have
to just be your home. It could be any talk
about any real estate that you're talking about here, ask
your child do they does he does she want to
(06:41):
pay potentially a twenty percent capital gains tax on that home?
Or would they rather receive the home as part of
an inheritance and have zero capital gains tax? If in
(07:03):
the end they say, hey, I would rather inherit the
property than own it now, maybe maybe you'll even convince
your child in that case, how about you paying for
me to have a trust prepared or perhaps a Lady
Bird deed prepared that will accomplish that. So if you
(07:31):
have any other questions, any still questions about determining how
best passed a home to your child without the capital
gains tax, please reach out to us. And I know
(08:05):
that's kind of a brief episode, but it's important. It
was something that has come up in conversations with clients today.
I hadn't talked about it for several years, so I
thought I would update you on that discussion. Of course,
so Aman and I. If you have any questions about
that making that gift to your child, or if you're
(08:26):
looking to have an estate plan prepared for you or
amending a plan that you have, or assisting you in
settling your state, please reach out to us. Head on
over to DOYLELOWPC dot com. There you're going to find
all information on how you can schedule in consultation off
in consultation at our offices, be that Grand Rapids or
(08:48):
in Lancing Now, or perhaps a virtual consultation via zoom
or telephone. Also remember to if you're simply looking for
an individual document, you will likely find that available in
our legal store, which again is at DOYLELAWPC dot com.
(09:12):
But I think realize it's a pretty short show today,
but I think that's going to be it for today's show.
But as always, if you have a comment about the program,
a topic that you'd like to have me discuss, or
questions that you'd like to have answered, head on over
to Tuesday with Tom dot com. Leave a voice message
by clicking on the microphone, or alternatively, send me an
(09:35):
email that would be Tom at Tuesday with Tom dot
com and please follow us on Facebook. Invite your friends
and family to follow us on Facebook. That's going to
be Tuesday with Tom and follow the office at DOYLETPC,
and don't forget join our email list. When you're at
the website, you can subscribe to our email list, or
(09:55):
you can if you go to DOYLEPC, you'll have an
opportunity to sa subscribe to our email there as well.
But remember two Tuesday with Tom is available on probably
wherever it is that you normally listen to your podcast
Apple Podcasts, Spotify, Amazon Music, Google Podcast, iHeartRadio speaker and
(10:17):
you can always ask your smart speaker to play Tuesday
with Tom. Well, thank you again for spending some of
your time with us today and as always, I hope
that you have an awesome day and an awesome week
in Michigan. Stay safe and stay warm. Tuesday with Tom
(10:45):
has been brought to you by the estate planning attorneys
at Doyle Law PC. To learn how we can help
you with your estate plan or with settling a loved
one's estate, please call us today at five one seven
three two three seven three six six. That's five one
seven three two three seven, three six six mm hmm
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