Taxes from a Lady Bird Inheritance

[Michael G.]

A Lady Bird post was mentioned some time ago, and I know how it works.
What I don't know if there's a Capital Gains tax for the people that inherit the house?

Anyone Know?

[retiredguy123]

No, because the beneficiary only acquires ownership of the property as the result of a death. Therefore, the property is "inherited" with a stepped up basis. Before death, the beneficiary named in the ladybird deed has no ownership in the property, and the owner can rescind the ladybird deed at any time. This is different than if you place someone's name on the property deed as a co-owner before death. In that case, the person acquires ownership in the property before death and does not "inherit" the property. I am not a lawyer, so, if you want a legal opinion, consult an attorney.

[Topspinmo]

I would imagine depends on what state the property is in. Some state like to steal property or tax it enough have sell it.

[CoachKandSportsguy]

Yes there is capital gains for the people who inherit the house, if they subsequently sell the house for more than their exclusion.

A person inherits a house, with a Fair Market Value (FMV) at the death of the original owner's death.
The inheritor now owns the house at FMV.

When the inheritor sells the house, then there may be capital gains, based upon the difference between the sale price and the FMV of the inherited value. less any exclusion. . .

[retiredguy123]

Yes there is capital gains for the people who inherit the house, if they subsequently sell the house for more than their exclusion.

A person inherits a house, with a Fair Market Value (FMV) at the death of the original owner's death.
The inheritor now owns the house at FMV.

When the inheritor sells the house, then there may be capital gains, based upon the difference between the sale price and the FMV of the inherited value. less any exclusion. . .
I would just point out that you are saying basically the same thing that I said. There is a step up in cost basis to the market value at the time of death. Obviously, there could be a capital gains tax if the value of the property increases after the death of the owner, but this has nothing to do with the ladybird deed.

[Topspinmo]

I don’t understand this inherent tax? Taxes have been paid on property. Like they create new tax to steal from family bank account. As tax paying citizens we shouldn’t put up with that. Time to root out all these crooks that steal from citizens IMO.

[spinner1001]

I don’t understand this inherent tax? Taxes have been paid on property. Like they create new tax to steal from family bank account. As tax paying citizens we shouldn’t put up with that. Time to root out all these crooks that steal from citizens IMO.

If your net worth is over $28 million for a married couple ($14 million for a single person), worry about federal estate taxes. If not, don’t worry about it because you don’t pay it. You just need to figure out whether your net worth is over $28 million.

The states are a different story. Solution: Move to Florida where there is no inheritance tax.

[spinner1001]

A Lady Bird post was mentioned some time ago, and I know how it works.
What I don't know if there's a Capital Gains tax for the people that inherit the house?

Anyone Know?

To summarize:

Your beneficiaries who inherit the house do not pay federal capital gains tax when they inherit.

If your beneficiaries later sell the house at a higher price than the home’s value at your death, then they may owe capital gains tax on the appreciation since death.

[CoachKandSportsguy]

I would just point out that you are saying basically the same thing that I said. There is a step up in cost basis to the market value at the time of death. Obviously, there could be a capital gains tax if the value of the property increases after the death of the owner, but this has nothing to do with the ladybird deed.

correct. . . I owe you a beer at our next TOTV estate strategy dinner . . .

[rstebbins]

Step up in basis to the value on date of death. So no tax unless sell for more then that

[Michael G.]

To summarize:

Your beneficiaries who inherit the house do not pay federal capital gains tax when they inherit.

If your beneficiaries later sell the house at a higher price than the home’s value at your death, then they may owe capital gains tax on the appreciation since death.

Thanks, this was my understanding also.