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Thinking about estate planning and property transfer?

One of the most valuable assets you have is likely a piece of property, such as your main residence, or a beach house you offer as a vacation rental.

When you think about estate planning, the transfer of real property may be uppermost in your mind. What is the best way to approach this? Here are two ideas you may wish to explore.

Gifting the property

Perhaps you have questions about both the estate and tax implications when you want to transfer property to the next generation. Basically, you look at the transfer of wealth, sometimes with a good deal of sentimental or historical value attached. One option is to gift your property to heirs through your estate. If it is an outright, lifetime gift, your heirs will decide the ultimate fate of the property. In gifting the family home or that rental beach house, you can reduce your taxable estate, which may be an objective. You can also keep the property until you pass on, at which time your heirs will find that the tax basis is the market value at the time of your passing rather than the original purchase price. Of course, your heirs may decide to sell the property immediately. If so, they will not have to pay capital gains tax.

Selling an investment property to heirs

The Internal Revenue Service offers another option. You can sell an investment property like the beach house to your heirs using the concept of an intra-family loan. In this scenario, the IRS provides an ‘applicable federal rate,” a below-market interest rate. Your heirs will use the rental income from the beach house to pay back your loan. Meanwhile, the property transfers out of your taxable estate and may increase in value during your heirs' ownership.

If you wonder about the best method for ensuring you can pass along your real property to heirs, you can rely on professional guidance from an estate planning attorney who is also experienced with real estate sales and transfer matters.

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Phone: 732-994-6092
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