How to Save Your Children from a 20% Capital Gains Tax on Your Home (Episode 313

0:30 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 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 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?

1:29 I would recommend that you listen to our last episode. Today, 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 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 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 you're thinking, wow, why don't I ded the home to my child now rather than waiting for them to own

2:59 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 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 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.

3:53 And today most for most people, capital gains tax is 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 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 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 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

5:23 through a trust, or maybe you're going to use something like a Ladybird deede that's going to transfer your interest 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 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.

6:17 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 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 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 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

8:05 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 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 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.

9:12 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 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 you can if you go to DOYLEPC, you'll have an opportunity to sa subscribe to our email there as well.

10:04 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 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 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