2 min read Finance

Passing STR Wealth to Your Kids, Tax-Free

Passing STR Wealth to Your Kids, Tax-Free

At a Glance

  • Step-up in basis eliminates unrealized gains for heirs.
  • Strategic gifting reduces estate taxes and teaches ownership early.
  • Trust planning protects assets and controls distribution.
  • Roth IRAs amplify tax-free compounding across generations.
  • Insurance bridges liquidity gaps to protect your STRs.

1. Step-Up in Basis

When heirs inherit property, the IRS applies a “step-up in basis” — resetting the property’s value to its fair market value at the time of death.

  • This wipes out unrealized capital gains.
  • Your children can sell immediately or hold long-term without being penalized by your original purchase price.

💡 Example: If you bought an STR for $300K that’s now worth $700K, your heirs inherit it at $700K. If they sell for $725K, they only pay taxes on the $25K gain.

2. Strategic Gifting

You don’t need to wait until you’re gone to pass wealth down.

  • Annual gift exclusion (2025): $18,000 per recipient per year.
  • This lets you transfer wealth gradually while lowering your taxable estate.
  • You can also use gifts to teach the next generation about real estate ownership and responsibility.
“Small, consistent gifts create not just wealth transfer, but education in stewardship.”

3. Trust Planning

Trusts and family partnerships provide control and protection.

  • Irrevocable trusts remove STR assets from your estate, reducing estate taxes.
  • Family Limited Partnerships (FLPs) can centralize management of STRs while passing shares down to heirs.
  • Trusts allow you to set rules on when and how assets are distributed, protecting against misuse.

This is where your estate attorney and CPA should work hand-in-hand to design a plan aligned with your goals.

4. Roth IRA Strategies

If your children have earned income, you can set them up for compounding success.

  • Help them contribute to a Roth IRA early.
  • Pair STR cashflow with Roth contributions for tax-free growth across decades.
  • Even modest contributions in their teens or 20s can turn into a seven-figure account by retirement.

5. Insurance as a Bridge

One of the biggest risks in estate planning is liquidity — having cash on hand to cover estate taxes or expenses without selling assets.

  • Life insurance provides a tax-free payout to cover obligations.
  • This ensures STRs don’t need to be liquidated at a discount.
  • Used properly, it buys heirs time to decide whether to hold, refinance, or sell.

The Bottom Line

The goal isn’t just to pass on properties — it’s to pass on wealth that lasts. With the right mix of tax planning, gifting, and trusts, your STR portfolio can become a cornerstone of your family’s financial future.

Next Steps

👉 Want to understand how advanced planning integrates into your STR tax strategy? Start here: Advanced Tax Strategies for STR Investors.

See Also

Sources & Further Reading

Keith H.

High-earning sales leader and new STR investor mastering the craft fast. Sharing proven strategies to maximize cashflow, efficiency, and tax benefits so others can shorten the learning curve and scale smarter.
Rochester, NY