Dear Monty: My dad and mom owned a beach property with my mom's sister. When she passed away two and a half years ago, her son inherited it. They are presently trying to sell the property, and my cousin needs money, so he is eager to sell. My dad is not as eager to sell, so I am considering offering my cousin an amount and then owning the property with my dad. I don't know how much to offer, since I am unaware of the taxes he would incur if I bought his half. I want to just offer him an amount and take over on the deed — is that possible, and would he not pay any taxes when selling his half to me?

Monty's Answer: A deed transfer alone doesn't erase taxes. When someone inherits real estate, the IRS usually grants them a "stepped-up basis," which means their ownership starts at the property's fair market value (FMV) on the date of the decedent's death. If your cousin sells his inherited share, he may owe capital gains tax on any increase in value since that date. The only way he owes no tax is if he sells for the same value as his stepped-up basis. Otherwise, even if the transfer is within the family, the IRS treats it as a taxable sale.

You have several paths to accomplish your goal. Each has tradeoffs:

Option 1: Buy His Share at Fair Market Value

Pros: This is the cleanest solution. You avoid triggering gift tax rules, your cousin minimizes capital gains (if any) and the transaction is easy to explain later if the IRS or title company asks. Commission a licensed appraiser to establish FMV and base your offer on that figure.

Cons: Requires upfront cash. If you pay above FMV, you risk inflating basis complications; if you pay below, your cousin may need to file a gift tax return.

Option 2: Structure an Installment Sale

Pros: Instead of a lump sum, make monthly or annual payments. Your cousin gets a steady income, and you preserve liquidity. The IRS allows installment reporting, which can spread his taxable gain over years.

Cons: This requires careful legal drafting. Interest must be charged at least at the federal minimum rate, and default terms need to be clear. It can complicate family dynamics if payments become a source of tension.

Option 3: Gift or Bargain Transfer (Below FMV)

Pros: You pay less cash now. This may appeal if your cousin is motivated for a quick resolution.

Cons: This creates new risks. Transfers below FMV trigger gift tax reporting. The IRS uses FMV, not your private price, to judge tax liability. Your cousin may still face a gain, and your own cost basis could be distorted, raising future tax when you sell.

How to Decide

No. 1: Ask a certified appraiser for FMV today.

No. 2: Confirm your cousin's basis (date-of-death valuation from the estate paperwork).

No. 3: Have a CPA model the tax impact of each option.

No. 4: Hire a real estate attorney to draft the deed and agreements.

Some families try to shortcut these steps with "just change the deed." That shortcut is risky. Tax rules and property laws don't disappear because parties are related. A fair, documented, professional transaction preserves both your family relationships and your peace of mind.

Richard Montgomery is a syndicated columnist, published author, retired real estate executive, serial entrepreneur and the founder of DearMonty.com and PropBox, Inc. He provides consumers with options to real estate issues. Follow him on Twitter (X) @montgomRM or DearMonty.com.

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