Full question:
My 90 year old father wants to quit-claim his residence to me. What are the legal and tax ramifications, if any?
- Category: Real Property
- Subcategory: Sales
- Date:
- State: Florida
Answer:
Transferring real estate from a parent to a child can help avoid probate or allow the child to use the property during the parent's lifetime. However, there are important tax implications to consider. If your father quit-claims the property to you without remaining on the title, you will inherit his tax basis, which is usually lower than the property's market value. This means if you sell the property later, you may face significant capital gains taxes based on the difference between the sale price and your father's original cost basis.
Alternatively, if your father transfers the property to both of you as joint tenants with rights of survivorship, you will inherit the property at its fair market value upon his death. This is known as a stepped-up basis, which can significantly reduce capital gains taxes if you sell the property later.
It's also important to note that any transfer of property without receiving fair market value is considered a gift and may be subject to gift tax rules. Currently, the federal annual exclusion for gifts is $13,000 per individual or $26,000 for gifts by spouses. However, the gift tax applies only after you exceed a lifetime total of $1,000,000.
A quit-claim deed transfers property without warranties, meaning any existing liens or claims may also transfer. If your father is considering this transfer to avoid Medicaid claims, be aware of the five-year lookback period for asset transfers. Under the Deficit Reduction Act of 2005, transfers made after February 8, 2006, are scrutinized for this period. For every $4,300 transferred, there may be a one-month disqualification from Medicaid coverage.
Certain transfers, such as to a spouse or a disabled child, do not affect Medicaid eligibility. If your father’s equity in the home is $500,000 or less (or $750,000 in some cases) and he intends to return home, it may not count against Medicaid eligibility. However, creating a life estate without the power to sell may disqualify him from assistance. To navigate these complexities, consulting a local estate planning attorney is advisable.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.