My mom wants to move from her home to a smaller apartment, but she wants to keep the house in the family for my brother and me. We can't afford to buy it from her just yet. Plus, the house needs a fair amount of work and we'd need to refinance to get that work done.
I'd like to be able to take over the property from her, refinance for about 150K, and pay that off myself. However, I worry about getting whacked with the gift tax. And I'm not sure that I can refinance if she puts the house in a living trust with me as the trustee. Any advice? The house is in NY state, I live in NJ, and she'd like to move out here near us.
Any help would be appreciated.
2006-07-08 04:26:39 · 6 answers · asked by Mart M 1 in Business & Finance ➔ Renting & Real Estate
Have her put the house into a trust with you and your siblings as beneficiaries. She's the trustee and beneficiary of the trust until she dies (she will need to appoint successor trustee and beneficiary for when she does die).
Then the trust owns the house until she dies and it can pass through to the heirs free of estate or gift taxes (unless her total estate exceeds the estate tax exemption which is currently $2 mil and rising until 2010 when it is unknown what will happen).
If it looks like estate taxes might be an issue, she can start gifting each of the kids a percentage of the house equal to the maximum annual limit of $12K per person each year thus reducing the taxable estate.
If she wants to get some cash out of the house, she can refinance the house and you can make "rent" payments that cover the loan. She will need to do the refi, but as long as you stay under 80% LTV I would think that won't be a problem.
Talk to an attorney to figure out which type of trust is best. A living trust might not be but there are other types of trusts. It might also be possible to structure a contract to deed that allows the trust to retain ownership but you to take the tax writeoffs (not legal in all states).
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Warning, some of the suggestions here could be very dangerous. She can't sell it for a dollar because the IRS expects fair value for the property. She can't donate it to anyone or anything that isn't a legal non-profit organization. Both those suggestions could cause taxes and penalties (and theoretically jail).
It is best to consult with a good lawyer.
2006-07-08 04:36:35 · answer #1 · answered by Lori A 6 · 0⤊ 0⤋
My husband and I just transferred the land that he would have inherited when his parents passed into his name. To avoid the gift tax, we went ahead and took care of it before that time came. We just went to a lawyer and had him draw up papers stating that it was a donation. All his father had to do was sign these papers. We only had to pay the lawyers fee. The only problem you may run into is if she has a current mortgage on it. In that case, why couldn't you just finance it in your name? As if you were buying it from anyone else. Then you wouldn't have to worry about a gift tax because she's not really giving it to you, you're buying it outright. Even if it is less than what the house appraises for. Or, you and your brother could take over her payments with it still in her name until you can afford to refinance it in yours or his. That way, your mom would be free from her note so she could get her apt. Just some ideas, maybe you have thought of all this already. Hope it helps at least a little.
2006-07-08 04:48:26 · answer #2 · answered by Anonymous · 0⤊ 0⤋
Yeah, instead of your mother giving you the house you can buy it from her for a dollar. This way you get the house, it stays in the family and you don't have to pay gift tax. Your mother may want to write up a contract so she knows that you will pay her the rest of the money at a later date.
2006-07-08 04:41:02 · answer #3 · answered by P K 3 · 0⤊ 0⤋
Well, to my knowledge you can't give real estate. You must sell it. My mother was going to sell me her portion of the family property for $1. I don't know much about tax law. I think property tax is crap because you get taxed twice. Gift tax on property would be even more heinous. Seek council.
2006-07-08 04:33:06 · answer #4 · answered by AJ 3 · 0⤊ 0⤋
What if he ends up in a home? And I bought the house 2 years before?
2015-03-13 13:16:11 · answer #5 · answered by white and proud 1 · 0⤊ 0⤋
Just a warning: If you buy the house for one dollar and are audited I suspect the IRS will consider that tax evasion.
2006-07-08 04:46:30 · answer #6 · answered by underhillprop 2 · 0⤊ 0⤋