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Using Transfers To Avoid Taxes Maybe Unlawful

Ask the Real Estate Lawyer: Real Estate Law Q&A

REM #LAW 661

By Ilyce R. Glink and Samuel J. Tamkin

Summary: The reader wants to purchase a home his father and uncle inherited. He would like to avoid as many taxes and a reassessment of the property if possible. The reader wonders if a transfer of the property is the right move. Sam and Ilyce warn him that transfers maybe unlawful and suggest that they hire a local attorney who knows about intra-family transfers.

Q: I’m buying a home from my uncle and father but want to buy it without having the property taxes reassessed. They received the home as part of an inheritance.
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I have been told that a transfer from father to son does not require a reassessment of property tax. However a transfer from uncle to nephew or brother to brother entitles the property taxes to be reassessed at 50 percent of the value of the home.

The home’s value is less than $1,500,000 which I believe waives any proceeds from the house being taxed (due to it being willed down to my father and uncle). If my uncle quitclaims the property to my father, and I buy the house from my father, and my father then gives my uncle half of the proceeds, will my uncle get taxed on the money he is given?

What steps do I need to take to avoid having the property reassessed when I buy the home from my uncle and father?

A: I think you are confusing two separate issues as you contemplate how to buy the property from your father and uncle.

From a Federal income tax perspective, the estate of whomever left your father and uncle the property would be responsible for any estate taxes that are owed on the property.

If the home, along with other property owned by the estate, exceeds the exemption amount, which this year is $1,500,000, the estate will have to pay taxes to the U.S. Treasury. If, as you say, the home’s value is below the threshold for taxation, your father and uncle needn’t worry about taxes owed.

Remember, that the home is only one asset of the estate of the person that died. Your father and uncle should talk to an accountant or estate attorney who can help them sort through the tax issues.

On the real estate tax side, it appears that you’re trying to buy the property but don’t want the local real estate property tax assessor to reassess the home. If the assessor reassesses the home, I suspect the real estate taxes would increase substantially because property values have climbed substantially over much of the country in the past 10 years.

Each township or county assessor has its own rules as to when and how they will reassess homes. Some assessors will determine the value of a home on a yearly basis, while others will wait until the property is sold.

It seems you have already found out when and how your local assessor assesses property taxes. It may be easy to advise you to have multiple transfers to “avoid” having the assessor reassess your home, but in reality, you should seek the assistance of an attorney in your local area that is familiar with intra-family transfers.

If you undertake the series of transfers to “avoid” having the property reassessed, that may be considered unlawful in your state. Some state or municipal laws prohibit transfers that seek to avoid paying taxes of various sorts.

Since you don’t want to run afoul of the law, you should sit down with a real estate attorney who can help you sort out your options and guide you on how to proceed.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website www.thinkglink.com