Inerhitance Tax or Capital Gains?

[orangeade]

I'm in a conundrum. A friend owns a house, but doesn't live in it. His girlfriend also owns a house, but doesn't live in it. Both of their respective houses are paid for. They share a mortgage on a third house together. They both have children.

His question is whether or not he should sell his house to his kids now, or let them inherit it when he dies. I thought inheritance taxes were something like 40%, but then aren't capital gains taxes high also, if you don't live in the house that's sold?

I didn't know which way would save him money, but told him I'd try and find out.

Any body know?

 

[CleverNickname]

Inherit I think. No taxes for the first $600k(?). If he gave it now, he'd pay a gift tax.

 

[Bookman]

That would all depend upon the size of his estate and when he's going to die.

 

[Lat22]

I think my accountant told me that next year is a good year to die. Lots of rich old people on life support these days.

 

[CO Horn]

If he's lived in the house for two of the last five years, he can exclude up tio $250K of gain.

Is he renting the house? He could do a 1031 exchange and defer the gain.

As noted previously, whether or not the house would be subject to Estate Tax depends on the total value of his estate. There has been talk about abolishing the Estate Tax, but I don't think it will happen. I think they will likely settle on a $5 million or so exemption.