Capital Gains - Family Gift Tax - Safe Harbor?

[johnnysoaps]

What is the name of your state? California

My inlaws own two homes which are both mortgage free. One they currently live in and the other is a home my wife and I are currently renting which they want to sell to us. The purchased the home they are selling to us in 1968 for $50,000 and we will be purchasing the home at a fair market value of $550,000. Using the tax free gift of $44,000 per year for my wife and I, we technically pay off in the home tax free in 12.5 years using $44,000 promissiory notes.

My inlaws have not lived the home within the last 5 years BUT want to take advantage of the $500,000 of exemption of the current residence status (2 of 5 years). They are both retired and live with my mentally retarded sister in law.

We are considering switching residences(moving) for two years to get the exemption but they do not want to move because they are too they set in their ways and my mentally retarded sister in law is even more of a challenge to change her current schedule and routine. This could possible have a big negative effect on her mental state.

Are there other options for the primary residence clause? Does retirement or my sister-in-laws mental retarded condition fall within the safe harbor in capital gains law? Any suggestion?

Thanks in Advance!

 

[pojo2]

So which is it they GIFTING it to you or are you actaully going out, get a mortgage and paying them 550,000 for the home?

Why don't the lot of you go consult an Atty versed in Estate matters before you screw it up royally with your step around technology?

He/she can tell you how to lessen the tax impact.

 

[johnnysoaps]

They are gifting us $44,000 per year for my wife and I. They are selling us the home for fair market value of $550,000 no mortgage - to be paid in promissory notes of $44,000 per year for 12.5 years.

They only tax impact is the capital gains issue. We can switch residences for two years and this would not be a problem. I just want to know if retirement or the mentally retardation of my sister falls with in "safe harbors" so we do NOT have to switch residences. Thanks.

 

[divgradcurl]

They are gifting us $44,000 per year for my wife and I. They are selling us the home for fair market value of $550,000 no mortgage - to be paid in promissory notes of $44,000 per year for 12.5 years.

Just FYI, if they are "selling" you the home, or you are "paying" in promissory notes, it's NOT a gift. You need to follow pojo2's advice and go see a lawyer now, otherwise you will almost certainly end up needing a lawyer in the future when the IRS comes a-knockin'...

 

[johnnysoaps]

Thanks for your help.

Thanks for the replies!

Specifically what type of attorney should I seek?

Johnny