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Possible state tax law changes could affect gifting a home

New York State Gov. Andrew Cuomo has proposed

New York State Gov. Andrew Cuomo has proposed a change to New York’s estate and gift tax law to require all taxable gifts made after March 31 to be included as part of a person’s taxable estate Credit: Newsday / J. Conrad Williams, Jr.

Long Islanders thinking about gifting a house to their children to avoid future estate taxes might want to reconsider because of a New York State tax law that would kick in on April 1 with changes that may be approved in this year’s state budget.

It used to be a smart idea to transfer a house later in life so that heirs could avoid New York estate taxes, which are levied on estates worth more than $1 million. However, Gov. Andrew M. Cuomo has proposed a change to New York’s estate and gift tax law to require all taxable gifts made after March 31 to be included as part of a person’s taxable estate. This means that even if someone transfers expensive property to their children, it will still be counted as part of their estate for New York estate tax purposes after they die.

Wealthy homeowners should do their research, says Garden City attorney Louis Karol, who recently gave advice on estate planning at a Douglas Elliman event in Roslyn.

What makes things more complicated with gifting is that if the property was later sold for more than the owner originally paid for it, there would be a capital-gains tax to consider — about 30 percent on the profit from the sale. After April 1, estate tax would also be added on.

Families should be hesitant to transfer the house to children without seeking legal advice, Karol says. “Gifting a home right now may not be the best thing to do.”

The good news for those with sizable assets is that Cuomo’s proposal includes raising the estate tax exemption from $1 million to $5.25 million by 2019, meaning the tax wouldn’t kick in for an estate worth less than that amount. The move is part of an effort to stop rich New Yorkers from fleeing to Florida, which doesn’t have an estate tax.

Karol offers what might be a smart alternative — putting your house in a trust. If your children get the house through the trust, they can avoid capital gains tax on the sale of the home after their parent dies, and depending on the size of the estate, they may not have to pay estate taxes. Karol advises homeowners to talk to an estate planning attorney, rather than a real estate attorney, to figure out what is best for them.

"A proper analysis will consider income tax issues, estate tax issues and Medicaid issues to determine the appropriate course of action to take," Karol says.

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