I'm doing some research for my parents and have yet to find anything definitive or trustworthy. I'm hoping somebody can point me in the right direction. Here's the situation.
My parents are going to be selling their home that they've lived in for over 20 years. They'd like to use the proceeds of the sale to buy a smaller house for themselves and gift my sister (and her husband) a chunk of cash for a downpayment of her own. Let's assume the fair market value of my parents' home is $1.2M, and their cost basis is $500K. As I understand it, after the $500K exemption they'll owe capital gains tax on $200K.
What if my parents gifted my sister and her husband 25% (not each, total) of their home before they sell it? It seems like the $500K exemption would now covers the capital gains for both parties. My parents would also be on the hook for a gift tax, but there's a lifetime exclusion of over $5M that should cover this.
Is this totally wrong for some reason? I'm not looking for a full consultation. I just want to know if it's worth consulting (and paying) somebody knowledgable.
Thanks for reading!
