Inheriting vs Gifting

Today TaxMama hears from Terri in the TaxQuips Forum, with an delightful problem to haveWhat is the best way to reduce the tax consequences of inheriting land? The person inheriting the land is not related to the owner.  He could possibly marry her if that would help matters. The land was inherited and has very low basis.  Could the land be given as a gift and use up the lifetime gifting limit?  What if the fair market value (FMV) is over $1 Million?”  

Hi Terri,

 We’d need to know a LOT more to be able to give you a useful answer.

 If the land was inherited in the first place, it should have gotten a step-up in basis at the time of the  inheritance.  Why is the basis so low?

Is the man who is willing to marry this woman about to die?  Will he die this year?  If so, it could be worthwhile to get married. Then she would get a total exclusion from the estate tax of $4.3 million. 

If he dies next year, it won’t matter any more.  As of right now, the estate tax exclusion drops back to $1 million in 2011 – unless Congress writes new law.

Incidentally, gifting the land doesn’t help at all with basis. If the basis is really low now, it will be just as low in the hands of the person receiving the gift. In a gift, the basis passes to the donee (the recipient). Only as an inheritance does it get that step-up in basis.

  And remember, you can find answers to all kinds of questions about gifts and estates, and other tax issues, free. Where? Where else? At www.TaxMama.com.

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