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Tax, Home, Parents, Kids, Gift

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CA_llam

Junior Member
State - California

My parents cannot take care of their home any longer. They owe about 50K on a 650K home, which my sibling and I have been paying for. My sibling would like to take over the home; however for tax purposes (both parents and our sake) we would like to purchase the property from my parents at the best tax advantage possible price, since property tax will rise with the sales and/or current appraised value. Our parents want to let go of the home and just let us take care of it; as they continue to live there. So, we need to figure out how to divide this among the both of us. My sibling would not be able to qualify for a 500K loan without my help. So, both of our names will be on the loan. I would rather cash out on the home and have nothing to do with it.
We were thinking of purchasing the property for 500K (for tax purposes) from my parents. 70K payoff current loan and other bills. 100K I would like to cash out. And my parents’ puts 300K back into the house, so we can make a reasonable payment. Leaving a total owed amount of 170K and the rest is for my sister.

Mathematically:
500K sale – try to avoid gain taxes for parents
-50K –loan
-20K – bills
430 K goes back into the house from my parents
70K – total loan amount

Then we would re-financed the home under only her name for the remaining amount of 70K and take out 100K to cash me out, making the total loan amount to be 170K which she would qualify for.

This way our parents lets go of the home, live there and avoid tax penalty of gains
My name gets off the home and I cash out.
My sister can take the home and has a lesser tax gain on the sale of the home in the future.
And the loan on the home is affordable.

HOWEVER:

• Is this okay? Are there any posed concerns with this?
• Would the 430K that goes directly to the home be considered a gift from my parents? What are the posed tax concerns?
• What are the precautions that I should be aware of?
• When I cash out, what are the tax concerns? What if I use it as a down payment?
• Would we be able to purchase the home for 500K, if it is appraised for 650K or does it depends on tax appraisal?
:confused:What is the name of your state?
 


tranquility

Senior Member
Your plan is not understandable. Break it down into what is going and coming from each person for anyone to get what you are trying to say. When people start thowing up all the in and out folderal, I become suspicious of sham transactions. Before any advice can be given on the transaction you propose, put up the debit/credit and benefit/responsibility of each party separately.

A few things in general. First, look into the medicare/medical issues. Selling a house for less than FMV within the lookback period is a big no, no if the former owners are getting assistance. Second, look into a possible life estate to the parents with the remainder to the sister. Then you can discount the purchase because of the lesser interest in the property. Third, look into a reverse mortgage. The first can be a real worry while the second two may offer a way out of the problem without a web of deals.
 

CA_llam

Junior Member
Basically, we have been paying for our parents’ home. Now they just want to hand it over to us. We were told that we cannot sell below the appraised tax assessment value of the home. And we were also told that with a married couple they will be able to avoid property gains tax if they sell the home for 500K. – is this true?
One parent has Medicare already and the other doesn’t not qualify yet. – we will look into the Medicare issues, thank you.
They want to continue to live in the home as well as my sister.
We are trying to figure out if there is actually a way to turn the home into some kind of an asset. As we would want to avoid probate.
Get the home in our names? And the best way to transfer the home.
Parents and sister can stay in the home?
So we thought if we
Purchase property for 500K – or FMV (as my question above regarding tax assessment)
Our parents would have 70K for their loans and bills
Can they put 430K back into the house to pay down the principal of the new loan that my sister and I acquired for the purchase? Making the monthly payment affordable and releasing the home to my sister and I. And we would re-finance the home under her sole name for 170K, where I would take out 100K?

Is there a way to do this?
I will also look into a reverse mortgage option. Thank you for that advice also.
 

tranquility

Senior Member
You have continued on with an attempted explination without doing what I asked so I won't speak to your transaction plan.

As to a transfer for value, per Prop. 58, transfers between parent and child by gift, inheritance or purchase are not re-assessed per the Constitution.

An example of what I want:

Parents:
+$500,000
-Ownership of house
+Life estate in house
-Mortgage liabliity of $50,000

You
-$500,000
+Mortgage Liablity of $100,000
+Ownership of Remainder of house

Sister
-$50,000
+Mortgage liability of $50,000
+Life estate in house


Something like that.
 

LdiJ

Senior Member
Just go get a consult with a local professional...because you are not going to get any kind of decent answers here with the way you are proceeding with your questions.
 

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