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(Beemandad:)....All of the real estate has appreciated in value and the income generated has increased as well. If the individual now wants to divide up the real estate and gift out percentage interests to to family members, how are the gifts valued for the purposes of the gift tax exemption? Does the individual's basis control or is the present value or some other value used?

For gift calculations you use the fair market value at the date of the gift. (And you should consider appropriate discounts for minority interest and lack of marketablility. The property's income tax basis will carry over to the recipients, as you indicate the property has appreciated. So a sale would result in gain to the recipients.

Besides gift tax, are there other possible tax consequences I should look into? Thank you!

Talk to a lawyer in your area about how to do this mechanically. Giving fractional interests in real estate can be a logistical nightmare with multiple relatives; forget the tax aspects. What you end up with is, in essence, a general partnership without a partnership agreement. What do you do when the owners disagree about major items, like selling or renovating?

This gift probably involves filing multiple deeds, incurring transfer taxes, and maybe also resulting in the property's assessed value being increased, where it wouldn't otherwise, as mentioned earlier.

If you want to make gifts on a recurring basis, it would make sense to leave title in the name of a single entity, be it a partnership, S-Corp, or trust. Then you can make gifts of a percentage interest in the entity, without filing new deeds, and getting scrutiny from the assessor's office, or incurring transfer taxes or expenses.

Use of a single entity also allows for management to remain with the principal owner, without interference from other family members.

Bill
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