basically the highest mortage i can afford w/o a down payment, but same as what she paid for home or a little more
and what tax penalty will she pay(gains or gift??),(does she pay taxes on difference between what she sell us for and market value??)
in turn i own the house with a high-interest mortgage because of no downpayment,(to buy from mom), i sell it for market value, i accept the gains tax,(or maybe not caused i lived in house for 5+yrs before buying from mom) pay it, pay mom a sizeable amount, and then i am left with a down payment for my new mortgage and house,(which i didnt have before) i hope this makes sense
2006-08-05 10:57:34 · 6 answers · asked by dizzied1974 1 in Business & Finance ➔ Renting & Real Estate
She could make you a gift of whatever she would pay in capital gains by selling it for full market price, and call that a downpayment.
Your mom is entitled to make a profit on her real estate investment, and you shouldn't deprive her of that.
2006-08-05 11:04:56 · answer #1 · answered by Catspaw 6 · 0⤊ 0⤋
You wouldn't have any Gift Tax to pay, but your mother certainly could. The difference between the sales price and fair market value is a gift for Gift Tax purposes. Gift Tax is always assessed on the donor, not the recipient. There is an annual Gift Tax exclusion amount of $12,000. There is also a unified lifetime exclusion amount as part of her estate that she could use but this would reduce the exclusion available to her estate when she passes. If her estate is minimal, this may not be a matter of concern but if her estate is significant it could be important. With the current uncertain future of the estate tax, this could be a real problem is she should die at the "wrong" time. She should consult with a CPA or tax attorney to make sure that the deal is structured properly and the required Gift Tax returns are filed. Willing the house to you might be a better bet. She could sell you an undivided partial interest in the home now and leave the balance to you in her will. That way you'd get the stepped up basis on her share when she dies. There would be no gift tax consequences now either. Do NOT put the property in an irrevocable trust. That bypasses the estate and you won't get the stepped up basis on her death.
2016-03-27 00:21:52 · answer #2 · answered by Anonymous · 0⤊ 0⤋
The above answers appear to address ethical and tax issues, so I'll just speak of the mortgage. Your mom can do a "gift of equity" for the down payment, however, this will trigger a taxable event. Speak to your tax professional about this.
What that leaves you, however, is a new first mortgage at a lower loan to value because that gift, when it is from family, is the same as a down payment to the bank. For easy numbers, if the house is worth $100,000 and she gifts you $20k, your new mortgage at 80% will not carry any PMI (Mortgage insurance) or a need for a high rate second mortgage.
It is natural for a parent to want to help their child, I will do the same for my son. If the home is paid off, you may have other options such as a seller-carried mortgage, a "wraparound" mortgage, in which you make payments to her. Also, you may choose to structure the "gift of equity" as a "seller carried 2nd TD", with no payments on, say, a 30-yr balloon note, which would be due upon your mom's passing (hopefully long, long away). This would effectively postpone some of the tax issues. Speak to a CPA about this, and a mortgage advisor who knows more than just quoting rates. Notes only become taxable as a gift if the loan is forgiven; if it is within the terms but still due, no tax is due.
2006-08-05 11:56:44 · answer #3 · answered by rogerv_dotcom 1 · 0⤊ 0⤋
No, she should not sell it to you for less than market value! At the very least, it could trigger a gift tax event for your mother for the difference.
Your mother owes you nothing. If you can't afford to pay the fair market value, you should move to something that you can afford.
If your mother is selling the property and wishes to help you buy your own place, she should sell it for market value and make a gift of $12,000 to you for you to use towards a down payment for your own place. The $12,000 will not trigger a gift tax event for her and she will be free to do whatever she wishes with the remaining proceeds without getting into some flim-flam scheme with you.
2006-08-05 11:31:45 · answer #4 · answered by Bostonian In MO 7 · 0⤊ 0⤋
Your Mom should not be expected to sell the house to you for less than market value. I can't think of any good reason, you need to just go get a job or something so you can afford a house at market value.
2006-08-05 11:05:06 · answer #5 · answered by royal_fryer 3 · 0⤊ 0⤋
definetely....she should.. she is your mom after all. may be she should give u for free.
2006-08-05 11:03:41 · answer #6 · answered by Val 4 · 0⤊ 0⤋