As I mentioned yesterday this is a complicated issue with multiple factors. While your parents CAN gift you the house, there are both advantages and disadvantages to doing this so you will just have to weigh each of these to determine what makes the most sense for you. In the event your parents gift you the house, this would solve the issue of having an asset that they could be forced to liquidate in the event they need government healthcare assistance, which I know was the primary goal. On caveat to this of course if there is a 5 year lookback on this so if they passed away within the next 5 years, they would still be forced to sell the home and use those proceeds to pay for care before any Medicare assistance could be claimed. The annual federal gift tax exclusion is $17,000 for single filers and $34,000 for married couples filing jointly. Meaning, you can individually give up to $17,000 to as many people as you want in a given year without having to report it to the IRS. It is important they file a Gift Return when completing their taxes so this can be documented. Obviously the property value is over the annual gift amount so the remainder would could towards the lifetime gift exclusion. As long as they do not have a sizeable estate, I don’t think this will be an issue. The lifetime gift tax exemption is $12.06 million so they can give away up to that amount in their lifetime before having to pay any gift tax. Assuming no changes, this exemption amount is set to expire at the end of 2025. Starting January 1, 2026, the exemption will drop to $6.2 million. Along with the filing of the gift tax return, I recommend having them prepare a gift letter outlining the details. This is not the only step but an important and easy one that defines the transaction and most importantly the terms of the gift. A few details on this are below
https://trustandwill.com/learn/gift-letter
The last recommended step is to actually transfer the property. The best and easiest way to do this is in my opinion is using a Gift Deed. The details on this are below. However one important thing to keep in mind is that once this has been completed, you are financially responsible (and liable) for all taxes, insurance etc. for that property so if her parents experience a hardship (or falling out) you will be responsible for the bills.
https://www.texaspropertydeeds.com/texas-gift-deed/
Once you do all of this and the property is yours, and her parents live longer than 5 years, the property is free and clear of any potential roadblocks until the sale of the home at some point in the future. At this point, there are going to be some significant tax implications to consider. First, since this was a gift, you will assume the same cost basis on the property as Tina’s parents. Meaning if they bought the home originally for $20,000, then this is what you will be considered to have bought the home for, and any amount above this amount will be taxable upon the sale of the home at some point in the future. Based on current tax laws, proceeds from the sale of the property will be taxed at Capital Gains tax rates, currently 15-20%. Hypothetically, assuming you sold the home in 2050 for $400,000, then you would owe capital gains taxes on $380,000 (Sale price of 400K – basis of 20K), which would mean your tax bill would be $76,000. While no one likes to pay taxes, you would still clear $324,000 so this is not a terrible outcome. When you get to that point, there are things that we can do to avoid these taxes like 1031 exchanges, Opportunity Zones etc. so there are things we can do to help avoid those taxes when you get to that point.
The only way for you to avoid these taxes is if this property was considered your primary residence. This means you would have to live at the property for 2 years. However, a married couple can ONLY have one property considered as their primary residence so you could not claim any other property as your
homestead. This likely eliminates trying to claim their property as your primary residence because your current home is probably worth more so it would be more beneficial to maintain your current home as your primary residence but I am just guessing.
The flip side of this coin obviously is if her parents did not give you the home. Obviously this does not necessarily solve the issue with the asset and Medicare, but it would impact you differently from a tax standpoint if you were to simply inherit the home upon their passing. In that case, you would receive a step up in basis to the market value upon their passing on the sale of the property. So using the same numbers as the previous example, if they passed away in 2050 and Tina inherited the home, your basis would be 400K. If you sold the property for 400K, and your basis was $400K, your taxes would be $0 because you would not record any gains on the sale.