Can i sell my property to my son for less then its worth whithout getting in trouble with the IRS, or having?

Question

or hav ing to pay a hefty fee or fine. i payed $155,000 for it back in 1992, i'd like to sell him the property for $170,000. its worth around $280,000 to 300,000. the property is a little house that's been converted into my office. so i think its zoned commercial, and i write it off each year as my office on my taxes. thank you

Answer 1

Hm...you can't give away the capital gains and you also have depreciation involved....  Nice try.

Chances are your son will still need to get a loan from the bank for the $170K and the bank is going to issue a 1099-S for $300,000 (they will treat the gift of equity as a gift of the downpayment outside of the loan).  You will show the sale on your tax return.  You will pay the capital gains as well as recognize the depreciation you claimed in the past.

(If you don't go through a bank, you can avoid paying taxes on everything except the depreciation, but then you would have your son owing the capital gains when *he* sells since his basis would still be your basis.)

Answer 2

Sure, but if you sell it for less than fair market value, you are giving him a gift of equity for the difference.  Using your high number, that's a $130k gift so a Gift Tax return will be required.  The excess over the $12,000 annual exclusion will eat into your lifetime $1,000,000 exclusion but no tax will be due unless you've already used that up.  That exclusion amount will also reduce the Estate Tax exclusion on your estate when you die so it could trigger or increase the tax that your estate will pay.