Gifts versus Inheritances – Is there a difference?

Is there a difference between Gifting and Inheriting land? Click here to find out.

Thinking about what will happen to your land after you are gone is often a subject that people would rather avoid. There are two main ways to transfer ownership of your land to a loved one without selling it. They are “Gifting” and “Inheriting”. The terms seem pretty similar, but unknowingly can have major impacts on your loved one’s taxes.

Sometimes, landowners “Gift” their land to a loved one while they are still around to make sure that the land is in the hands of someone with similar goals and feelings toward the land. When gifting, you also transfer the “basis” for what the land was originally purchased at. Here is an example: If you bought your land in 1970 for $5,000 and “Gifted” it to your daughter in 2019 when the land value was $25,000 and she sold the land in the future for $30,000, her Net Gain would actually be considered $25,000 (30,000-5,000). She would be taxed on that $25,000 profit.

Another way to transfer ownership of land would be through inheritance. After passing, your land would go to whomever was designated in your will. A new “basis” is established for your daughter based on the appraised value of when she inherited the property (appraised value in 2019 is $25,000). Using the same example as above, now if she sells the land for $30,000, her Net Gain will only be $5,000 (30,000-25,000) because the new appraised basis of the land is $25,000 in 2019 (when she acquired the land) and she will only be taxed on that $5,000.

You should always consult with a financial adviser before making any decisions because each circumstance is different and can have difference tax consequences. 

IRS Estate and Gift Taxes: https://www.irs.gov/businesses/small-businesses-self-employed/estate-and-gift-taxes

IRS Gifts and Inheritances: https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances