The taxpayer plans to gift his 1031 property to his mother, who will continue to put this property in rental as investment property. is this gift a disposition or the taxpayer needs to pick up the deferred gain?
Highly appreciate if someone can shed some light on. I didn’t some tax researches, but couldn’t quite convince myself with the results.
When the taxpayer gifts her rental property to her mother, her mother has a carryover basis so she will take on her basis. Although the property was acquired via a 1031 exchange, this transaction does not trigger a disposition. Take a look at IRC Sec. 1014(e).
However, the taxpayer will need to file a Form 709 Gift Tax Return. She will be using a portion of her estate exemption. She will need to get an appraisal of the property to value the gift.
If the taxpayer does not have a taxable estate, this is good technique to bump her cost basis in the future. Let’s say the taxpayer is the sold beneficiary of the mother’s estate. Accordingly when she inherits the property, she will get it back with a stepped up basis when she dies.
However, if she inherits the property within a year of the gift, there is no step up in basis.
Well, not quite as straightforward, depending on the circumstances. If a taxpayer gifted a property very close in time to a 1031 exchange, either imeadiately before or after the exchange, there might be issues that make the exchange NA and a taxable event.