Anonymous
11/28/2020 11:40
Subject: Real estate & tax implications - elderly parent
As other people have mentioned, do not have her gift the house to the son. Horrible idea from a tax perspective.
Keep the house, rent it out. It will be a pain in the butt, but it will provide her with a steady income. Dementia care is VERY expensive. And what they don't tell you is that it gets even more expensive as time goes on and the dementia gets worse.
Also, primary homes are not included when determining eligibility for financial help for care. But everything else is. Say the house is worth 500K. If she sells it for 500K and then has 500K in investments, those investments count towards determining whether she is eligible for $ from the government for her care (she would not be). If she keeps the house, only the monthly rent (less expenses) would be used to determine if she was eligible. If she has enough money in savings/investments, this doesn't really matter. But as I said before, dementia care is expensive, she could go through that other money fast.
Keep the house, rent it out. It will be a pain in the butt, but it will provide her with a steady income. Dementia care is VERY expensive. And what they don't tell you is that it gets even more expensive as time goes on and the dementia gets worse.
Also, primary homes are not included when determining eligibility for financial help for care. But everything else is. Say the house is worth 500K. If she sells it for 500K and then has 500K in investments, those investments count towards determining whether she is eligible for $ from the government for her care (she would not be). If she keeps the house, only the monthly rent (less expenses) would be used to determine if she was eligible. If she has enough money in savings/investments, this doesn't really matter. But as I said before, dementia care is expensive, she could go through that other money fast.
Anonymous
11/28/2020 11:33
Subject: Re:Real estate & tax implications - elderly parent
Anonymous wrote:Anonymous wrote:I would rent and then sell after her death. You'll lose the *stepped up basis but still probably net a higher amount after taxes. The rental can be handled very easily by a real estate agency.
OP, you need to make quite a few calls. First call a few real estate agencies and talk to some experienced agents. Have them tour the house if possible. Get their thoughts on the rental market and get a cost on property management. Also get their thoughts on a sale price right now versus a sale price in a year or two (which would still keep her within the *stepped up basis if she moves out, say, tomorrow.) Second talk to a bunch of nursing and retirement homes to get a good feel for what she will be paying. Some places are like a rental, with only a hefty fee each month, some you buy into plus pay a monthly fee. It depends on the type of facility and the services. Third talk to companies that provide in-home care. It can be a lot more affordable than you think although it will mean a lot more oversight, which you may or may not be able to provide depending on your own life and your location relatives to the parent. Fourth talk to a tax attorney who also knows estates.
There are other factors to consider of course but these cover the basics. We're going through the same things ourselves.
Oops. Brain fart. *capital gains exclusion
Yes — you lose the capital gains exclusion, but it doesn’t matter, because you get a stepped up basis upon inheritance.
Anonymous
11/28/2020 10:41
Subject: Real estate & tax implications - elderly parent
Anonymous wrote:Thanks PPs. She’s 88, has just the one son, and her husband died about four years ago. She did sign a POA years ago, but it needs to be updated as her son was primary and her late husband was secondary. So if anything happens to her son, there’s no longer a back up, and closest living relative after her son is NOT a trustworthy individual (think theft and fraud).
For now, she has not been formally declared incapacitated, but she really does not have the capacity to make reasonable judgments about her care or financial decisions.
She and her husband bought the house close to 50 years ago, so yes, there’d be a lot of gain. If her husband died 4yrs ago would she also get “credit” for the step-up of his half the property? If so, that would help a lot, but there would still be a pretty meaningful gain.
4 years ago? Definitely consult an attorney (to get an accurate answer on how exactly when she would need to claim the exemption by) and get going if you even think she will sell. Every house needs fixes to be in its best shape before going on the market. You also need to talk to some realtors to get their ideas on what needs to be done and what you should ignore and let the buyer deal with.
How were she and her husband holding the property? Was it only in his name (pretty common even in the 60s and 70s) and then transferred to her upon his death?
FWIW I would probably hold onto it and keep renting it out for the monthly rental income but that's me. If you think you want to sell then you need to get your rear in gear to get it done before the ability to use the husband's exclusion would run out.
Anonymous
11/28/2020 10:01
Subject: Real estate & tax implications - elderly parent
Anonymous wrote:Democrats have formally proposed eliminating the step up basis for inheritance. (It's an unfair tax loophole and should be eliminated, imo.) It probably won't disappear in the next 2 years but I bet it will disappear in the next 5, 10 years at most.
It isn’t a “loophole” at all, pp. It is deliberate and sensible tax policy. I don’t know why you think it is “unfair.” It is available to everyone — it isn’t some special tax break like carried interest (which is more like a loophole since it isn’t really intended tax policy).
Stepped up basis is also much easier to administer. Carryover basis in real estate would be ridiculously burdensome.
Anonymous
11/28/2020 09:42
Subject: Real estate & tax implications - elderly parent
Sell. And then do as much paperwork as possible (closing down old accounts) before she is formally declared incapacitated. DH sits with his mother who also has mild dementia, makes the calls and then hands the phone over to her so that the agent can confirm her intentions.
Anonymous
11/28/2020 09:32
Subject: Real estate & tax implications - elderly parent
Thanks PPs. She’s 88, has just the one son, and her husband died about four years ago. She did sign a POA years ago, but it needs to be updated as her son was primary and her late husband was secondary. So if anything happens to her son, there’s no longer a back up, and closest living relative after her son is NOT a trustworthy individual (think theft and fraud).
For now, she has not been formally declared incapacitated, but she really does not have the capacity to make reasonable judgments about her care or financial decisions.
She and her husband bought the house close to 50 years ago, so yes, there’d be a lot of gain. If her husband died 4yrs ago would she also get “credit” for the step-up of his half the property? If so, that would help a lot, but there would still be a pretty meaningful gain.
For now, she has not been formally declared incapacitated, but she really does not have the capacity to make reasonable judgments about her care or financial decisions.
She and her husband bought the house close to 50 years ago, so yes, there’d be a lot of gain. If her husband died 4yrs ago would she also get “credit” for the step-up of his half the property? If so, that would help a lot, but there would still be a pretty meaningful gain.
Anonymous
11/28/2020 09:19
Subject: Real estate & tax implications - elderly parent
I wouldn't leave it empty too long. Wasn't it that area where Bethesda teens found the empty house and started using it for parties? Several years back, I think the owners were posted overseas.
Anonymous
11/28/2020 09:08
Subject: Re:Real estate & tax implications - elderly parent
If she has dementia, who has legal authority/capacity to make the sale? Did she give her son Power of Attorney before she developed dementia?
Anonymous
11/28/2020 08:44
Subject: Re:Real estate & tax implications - elderly parent
Anonymous wrote:I would rent and then sell after her death. You'll lose the *stepped up basis but still probably net a higher amount after taxes. The rental can be handled very easily by a real estate agency.
OP, you need to make quite a few calls. First call a few real estate agencies and talk to some experienced agents. Have them tour the house if possible. Get their thoughts on the rental market and get a cost on property management. Also get their thoughts on a sale price right now versus a sale price in a year or two (which would still keep her within the *stepped up basis if she moves out, say, tomorrow.) Second talk to a bunch of nursing and retirement homes to get a good feel for what she will be paying. Some places are like a rental, with only a hefty fee each month, some you buy into plus pay a monthly fee. It depends on the type of facility and the services. Third talk to companies that provide in-home care. It can be a lot more affordable than you think although it will mean a lot more oversight, which you may or may not be able to provide depending on your own life and your location relatives to the parent. Fourth talk to a tax attorney who also knows estates.
There are other factors to consider of course but these cover the basics. We're going through the same things ourselves.
Oops. Brain fart. *capital gains exclusion
Anonymous
11/28/2020 08:24
Subject: Real estate & tax implications - elderly parent
Anonymous wrote:Do not give it to the son now!!!!!! This would be a massive mistake. Assuming she’s lived there a while, she should have $250k in gains that can be taken tax free. Who knows if Biden will keep that loophole. I would sell the house now. Prices are at an all time high with people fleeing cities and rates so low.
She is going to face significant capital gains no matter what because of when she and her husband purchased the house. Honestly an additional $250k in gains may not make that much difference.