Skip to Content

We are a Veteran Owned Business, providing 20% discounts for Veterans, First Responders, Elementary and High School teachers. Please contact us to set up a phone or Zoom meeting. Taking care of you and your family, It's What We Do!

Klenk Law

Will Transferring a Home as a Gift Avoid Inheritance Tax in Philadelphia

Posted on Fri Jan 30, 2015, on Estate Planning

From our “Ask a Question” Mailbag: Will Transferring a Home as a Gift Avoid Inheritance Tax in Philadelphia

Most Recently Updated July 8, 2018.

“My father wants to transfer a rental property he owns in Philadelphia into my name. If he does, will this gift avoid Pennsylvania Inheritance Tax?”

Will Transferring a Home as a Gift Avoid Inheritance Tax in Philadelphia

Will Transferring a Home as a Gift Avoid Inheritance Tax in Philadelphia

As a Philadelphia resident, at your father’s death, all assets he leaves you at death (except life insurance) will be subject to the Pennsylvania Inheritance Tax at the 4.5% children’s rate. That includes all gifts made within one year of the date of his death. So, if he transfers the rental property into your name and lives for at least one more year, at his death you will avoid Pennsylvania Inheritance Tax payment.

Depending on the facts, this might not be the best idea.

If your father transfers the real estate into your name, you will receive a Transfer Basis. This means your basis for tax purposes will be whatever his basis was on the day of transfer. If he has owned this property for some time, he may have depreciated the rental property down to zero basis. This means that if he or you sell the property, the entire sale will be subject to Capital Gains Taxes.

Stepped Up Basis

If instead your father keeps the property until his death and gives it to you in his Will, you will receive a Stepped Up Basis. This means your tax basis will be equal to the fair market value of the property at the date of your father’s death. All Capital Gains up to that date are erased. You could sell the property at the date-of-death value and pay no Capital Gains Taxes.

You can see that depending on your father’s current basis and the value of the property, paying Capital Gains Taxes could far exceed the Pennsylvania Inheritance Tax.

Further Options to Consider

Further options to consider are the chances that your father may create future debts. If he does, the property might have to be sold to pay those debts. In that case, paying a higher Capital Gains Tax is better than receiving no inheritance at all.

You father may also want to consider transferring the rental property into a protective irrevocable trust for you during his lifetime or through his Will at death. Either way, the trust could be designed to shelter the property from your future legal problems, such as divorce, bankruptcy, and creditors. A protective trust might also help your father feel more comfortable that the property will pass to his grandchildren at your death.

More Planning Questions?

The transferring of property is only a piece of the Estate Planning process. By all means, if you want to learn more, please read my more detailed article, Estate Planning Everything You Need to Know.

In Conclusion: Will Transferring a Home as a Gift Avoid Inheritance Tax in Philadelphia

I hope that this article was helpful in explaining tax implications. Further, I included links to even more detailed information on my website so you can learn more. Therefore, please contact me and let me know how I did. Certainly, your comments and questions are welcome!

Let our Estate Planning lawyers help walk you through what can be a confusing process. To begin with, call to speak to one of our experienced estate planning lawyers.  By all means, our lawyers are ready to answer your questions. In fact, feel free to contact our office for a free consultation. Ultimately our goal is to make the process as painless as possible!

Wills, Trusts, Probate, and Estate Litigation, It’s All We Do!

Estate Planning Attorney, Tatyana Gleyzer

Tags:

Estate Planning, Estate Planning Attorney, Estate Planning Lawyer, Inheritance Tax, Pennsylvania, Philadelphia, Tatyana Gleyzer, Wills

What Our clients are saying

Klenk Law Logo
Stars

I was referred to Peter after my divorce to put documents together to protect my assets. He suggested a number of documents that would help protect my children and their future. Also, he put together wills, power of attorney and living wills. I initially spoke with him on the phone, he took 30-40 minutes to understand my situation and explain the benefits of having such documents. After a week or two, I met with him in his office and signed the documents. Everything else was remote phone calls and emails. He re-explained these documents and what whom to share. I am in good hands.

Klenk Law Logo
Stars

Very knowledgeable! Peter Klenk always has a thorough answer, and the associates have more experience than you'll find at most firms. They really only do estate work.

Klenk Law Logo
Stars

Peter Klenk was great in leading us in the estate planning process.He was clear in describing the various steps and what they would accomplish. We were well satisfied and pleased that we had Peter to guide us.

Klenk Law Logo
Stars

Fantastic customer service. Very personable and most importantly they provide great explanations of what is required based on your individual needs. Highly recommend Klenk Law for anyone that needs to create a will and estate documents.

Klenk Law Logo
Stars

I have had Peter Klenk prepare and revise my will. Always professional, knowledgeable and offers great advice. Highly recommend

Let us put our expertise to work for you.

Free consultation within 24 hours.