[Hallway]

My husbands dad has a home on land that he has owned outright for many years. My husband is the executer of his will. His dad would like to transfer the property into my husbands name before he dies. Is there any tax advantage to that? If he doesn't, when my husband inherits the property, what can we expect for inheritance tax? (Oregon).

[ScottGem]

Is the value of dad's estate under $2 million? Then there would be no federal inheritance taxes and probably not any state taxes.

If he transfers the property BEFORE his death, then it would be considered a gift and he would have to pay gift taxes on the value of the property.

If it goes to him as an inheritance, then his cost basis becomes the value of the property at the time of death.

The only real advantage of transferring the property before death would be the avoidance of probate and that may not be a real advantage.

[MukatA]

ScottGem is correct.

1. If the property is gifted, your husband's dad must file gift tax return of the fair market value. He may not be paying any gift tax as there is life time exclusion of 1 million.

2. In case of gift, your husband's basis is the based on his dad's basis and the fair market value at the date of death.

3. In case on inheritance, your husband's basis is the fair market value at the date of death. Your husband does not pay any inheritance tax.

4. If his estate is more than estate exclusion amount (2 million limit in 2008), then there is no tax. If estate exceeds the exclusion limit, estate tax must be paid.
Read Your U.S. Tax Return: Tax on Inheritances

[AtlantaTaxExpert]

The big issue here is the eventual gains tax paid when your husband sells the house and the land.

If he receives as a gift, his dad's basis becomes HIS basis, and a substantial capital gains tax is likely.

If he inherits the property, the basis is "stepped-up" to the value of the land at the date of his father's death. If he sells reasonably soon after his Dad's death, it is likely he will pay ZERO capital gains tax.