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Rental House - Gift vs Inheritance. My mother has a rental house for 23 years and now she wants to give it to me . What is the tax consequence? How can we avoid paying tax? My friend suggested that my mother just leave the house to me in her will since it will be an inheritance the basic will be FMV at that time and I won't have to deal with the past rental. Is this true?
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Your friend is on the right track. For mom to give it to you, she needs to file a gift tax return. Likely, no tax is due, but the return is. And then, you take over the rental at her basis, which is probably zero, or some small value to the land since she's depreciated it out. If/when you sell, you'll have tax on the whole thing. If she holds it until her death, it will transfer to you at the current fmv, so that if you then sell it, there's no gain on that part! Big difference.And you get to depreciate it all over again yourself.
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