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Estate Planning: Preserving Wealth in Real Estate | SVA

Estate Planning: Preserving Wealth in Real Estate



When it comes to estate planning, one of the most significant decisions is how to handle your real estate assets.

First, you need to decide if you want to transfer the property during your lifetime or transfer it upon death. How you choose to transfer can have tax implications on both you and your heirs.

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Lifetime Transfer vs. Transfer Upon Death

When you transfer property during your lifetime, the recipient inherits your original basis in the property. This basis is usually the property's value at the time you acquired it. If the property's value has increased, the recipient might face a hefty capital gains tax upon selling the property. This tax is calculated on the difference between the sale price and your original basis.

If you keep the property until your death, the basis of the property is "stepped up" to its market value at the time of your death. This step-up in basis can significantly reduce the capital gains tax liability if the property is sold by your heirs, as the sale price will likely be close to this new stepped-up basis.

Utilizing Personal Residence Gain Exclusion

Another aspect to consider is the Personal Residence Gain Exclusion. This provision allows individuals to exclude up to $250,000 of capital gains from the sale of their personal residence (or $500,000 for couples).

If you plan to sell your home, taking advantage of this exclusion and then transferring the proceeds to your heirs might be a tax-efficient strategy.

Exploring Trust Opportunities

Estate planning often involves sophisticated strategies, such as setting up trusts. A Qualified Personal Residence Trust (QPRT), for instance, can be an effective tool. This type of trust allows you to transfer your residence to a trust for a predetermined period.

This strategy can potentially reduce the gift tax that might otherwise be due on the transfer of your residence to your heirs.

The Importance of Planning

Real estate is a valuable asset, and its transfer requires careful planning. Every estate situation is unique, and the best strategy depends on individual circumstances, including the value of your property, your overall estate plan, and your heirs' needs.

Understanding your options and potential tax implications can help you make the right decision for you and your heirs.

To learn more about how to handle property transfer while estate planning, please contact Richard Kollauf, a Principal at SVA Certified Public Accountants.

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Biz Tip Topic Expert: Richard Kollauf - JD, CPA, CFP, AEP

Richard Kollauf - JD, CPA, CFP, AEP

Richard is a Principal for SVA Certified Public Accountants and has more than 35 years of experience working in financial, accounting, and legal operations. Richard’s expertise in the multi-faceted financial environment includes business succession planning, tax, investments, finance, mergers and acquisitions, estate planning, and trust administration. He also has experience in estate planning and distribution for complex operational and investment multi-state businesses. Richard provides income tax consulting services to closely-held and family-owned businesses, as well as high net worth individuals.

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