recieving and giving a gift

Hi, I am currently renting a house from my parents and they plan on gifting it to me. The tax form looks simple, but a tax guy quoted my $3000 dollars to complete the paper work. What am I missing? What types of leagal documents do you need for the government?

My next question was I wanted to refinance the house and gift some money back to my parents. Will there be problems with this? It seems like a cheaper way to go than just buying the house out right.

Jeff

What you are trying to do is make a sale look like a gift. If the IRS discovers that, they can tax the transaction according to its substance, which would be a sale of the house.

Besides, why do you think that would be a “cheaper way to go than just buying the house”? If you purchase the house at a price equal to your parents’ basis, they would have no tax on the sale, nor would you. If the market value of the house at the time of the transaction is more than your parents’ basis, then that excess would be considered a gift. If the amount of the gift is more than $11,000 ($22,000 if your parents jointly give the gift), they must file a gift tax return. However, there is a lifetime exclusion of $1,000,000 for gifts made by each of your parents, so there would be no tax on the gift.

I don’t know why the person wants to charge you $3,000 for the paperwork. However, I suggest you look at Form 709-A, "U.S. Short Form Gift Tax Return and its instructions. Then decide if you want to fill it in yourself, or have your parents fill it in. You can download the form for free at http://www.irs.ustreas.gov/forms_pubs/index.html

Thanks for the advice. I don't want to take the chance of the irs deciding the transaction was a sale later on. The reasons for the gift are: 1) The property tax wouldn't change with a gift. 2) I avoid paying selling costs. 3) The interest rates for refinancing are slightly lower. 4) I avoid paying mortgage insurance because I don't have a 20% down payment. I'd rather give the money to my parents than to a bank or business.

Do you have any advice on alternative ways to do this?

Jeff

I understand why you would prefer a gift, but the fact remains that you are trying to make a sale look like a gift. Maybe a tax attorney or CPA near you would have some idea of how to do this with the best results.