Good news for those seeking to gift or inherit real estate in 2022, the IRS applicable exclusion amount for gifts (the total amount exempted from gift and/or estate tax) is raised to $12,060,000 ($12.06mm) per person, or $24,120,000 ($24.12mm) for a married couple filing jointly.
That’s an incredible amount, especially considering the relatively low amounts in not-to-distant past.
Most estates can pass their real estate holdings without issue; however, it is easy to imagine coastal real estate exceeding these values. Orange County real estate features trophy properties that cannot be duplicated, including a recent $70,000,000 ($70mm) sale in Abalone Point within the Irvine Cove community in Laguna Beach, a currently known high mark for Orange County. A recent Newport Beach Harbor bay-front property in Newport Beach’s famed Bayshores neighborhood was listed for sale at under $10,000,000 ($10mm) and sold for just under $15,000,000 ($15mm) after receiving numerous all cash-offers. The heirs of those property may indeed have an estate-tax concern.
But for the most part, even ‘average’ homes in Costa Mesa and Newport Beach can be passed without concern for taxes in 2022. This includes inheritance and gifting of homes (i.e. gifting while alive).
Indeed, many owners elect to gift their homes to their children now, for many reasons, these current tax exemptions often a factor. Frequently, a sale at below market value can be easily (and legally) achieved to assist the child with a new loan, using a gift of equity to avoid any down payment.
Key to remember, these increased allowances sunset in 2026 absent further congressional action (i.e. they go way down in 2026 absent a change or update to the current law).
STEP-UP IN BASIS
The ‘step-up in basis’ remains for inherited property in 2022 despite political talk. This is key for those seeking to sell inherited property and can result in zero capital gains ($0) on the sale of inherited property (even those $70mm ones, under current law). (review our prior article, here, discussing the ‘step-up in basis’ in greater detail.)
California’s Proposition 19 is now one-year old: a costly ‘death-tax’ on inherited property; but creates opportunities for those 55 and older to transfer their ‘prop 13’ tax base to a new home, even a more expensive one! (review our detailed Prop 19 information here.)
GIFT EXCLUSION RAISED TO $16,000
The IRS annual exclusion for gifts (the total amount exempt from reporting) is raised to $16,000 per person (up from $15,000 per person).
This often-misunderstood threshold is merely the limit at which the IRS requires reporting. In other words, anything above $16,000 per person merely requires reporting of the gift to the IRS. (IRS form 709.) However, as noted above, the limits at which any taxes are due are far greater ($12.06mm per person in 2022).
Likewise, the 1031 remains strong and viable for real estate, also despite political talk. (review our detailed 1031 information here.)
Thinking of gifting or selling California real estate, we would love the opportunity to assist. Call or write anytime.
– Devin Lucas
Author Devin R. Lucas is a Real Estate Attorney, Broker and REALTOR®, specializing in Newport Beach, Costa Mesa and Orange County coastal communities, serving individual and investors in residential real estate.
Lucas Real Estate – Attorney Devin Lucas and CPA Courtney Lucas – are experts in California intra family transfers using all aspects of Propositions 13, 58, 193, 60, 90 and new Proposition 19. Learn more about how Lucas Real Estate may help your family transfer by clicking here.
Questions? – Paid one-hour confidential legal consultations are conducted daily via Zoom and address virtually all questions, options, tax implications and strategies. (Book a consultation here.)
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