My grandfather had a small farm of about 25 acres which is now in my parents’ name. My parents are planning to change the deed to my name now. The only permanent building is a metal tractor shed. My brothers live in a mobile home on the property and will continue to do so.
A neighbor bales hay and pays us per bale. The income from the hay is about the same as the property taxes, so there would be no profit or loss from the land.
My question is this: If the deed is put into my name, is it considered taxable income or a gift or not taxable until I sell it? We are in Texas. The value of the land is probably between $150,000 and $200,000. I do not plan to sell it. (In the near future, I may split off a few acres in my son’s name so he can build a house on it.)
Any experience you can share would be appreciated.
Your parents can gift it to you and it is not taxable to you (and it is never income, it is a gift). They may have to file an additional tax form for the gift to you (if it is over $15k per year per person), but it would only be taxable upon their deaths.
This will be an asset for you, and you’d have to report it on any FAFSA or other financial aid application.
Thanks for your answer. My kids are well past the FAFSA stage, but because of Obamacare, I can’t have any more taxable income.
Is there any chance either of your parents might need Medicaid in the next five years? If yes, you and they should consider the pros and cons of engaging in this transaction, which would likely be considered a divestment for Medicaid eligibility purposes.
Yes, they could need Medicaid. I know it’s a mess. We have been suggesting they do this for several years now, partly to get rid of their assets, but also to keep my ex sister-in-law from trying to get her money-grubbing paws on my brother’s share for their sons whom we (and my brother, their father) haven’t been allowed to see in 25 years. And believe me, she would. Long story.
I would talk to a lawyer. You will have some peace of mind knowing that the transaction is one that benefits everyone and, for example, doesn’t create a problem for the beneficiaries.
I’ll second the lawyer. You have more issues than a simple deed transfer. As long as the your parents estate is less than the current exemption amounts (fed I think is 5.6 million per person these days), they can gift you the property tax free and use up part of their lifetime exemption. The hay income and taxes appear to cancel out, so there would be no income generated.
However, how will you handle your brothers living on your property? What if you want or need to sell? Do they pay rent? What are your obligations vs. their obligations? Etc.
Then you have the medicaid issue and any look back possibilities to address.
And for good measure throw in the crazy ex sister in law. Will the property really be yours, your split between you and the brothers? Etc. etc. etc.
See a lawyer. Good luck.