Gift Tax or Inheritance Tax?

[katydid77]

What is the name of your state? Pennsylvania

My son purchased a house that he had been renting for 1 year from his grandfather in 11/05. Grandfather set price at $100,000. Fair market value is $125,000. Grandfather passed away 6 weeks later. What is my son responsible for tax wise. He is recently graduated from college and struggling to make ends meet and can't afford a huge tax bill. Is this considered an inheritance or a gift?

 

[LdiJ]

What is the name of your state? Pennsylvania

My son purchased a house that he had been renting for 1 year from his grandfather in 11/05. Grandfather set price at $100,000. Fair market value is $125,000. Grandfather passed away 6 weeks later. What is my son responsible for tax wise. He is recently graduated from college and struggling to make ends meet and can't afford a huge tax bill. Is this considered an inheritance or a gift?

Did your son take out a standard mortgage for the home when he purchased it? If not, does the death of his grandfather somehow transfer the title to him?

It should be either an inheritance or a standard purchase, neither of which would have any tax consequences to your son. However, without knowing how it was structured, its hard to give any definitative answer.

 

[katydid77]

It was a Fannie Mae Standard Loan. His grandfather sold it to him cheap enough so that he wouldn't have to have money down. For mortgage purposes, they called it a gift. The title was transferred to my son at settlement. I agree with you, from everything I've read, I think that the estate of his grandfather must pay a gift tax but my son would not be liable for any taxes.

 

[LdiJ]

It was a Fannie Mae Standard Loan. His grandfather sold it to him cheap enough so that he wouldn't have to have money down. For mortgage purposes, they called it a gift. The title was transferred to my son at settlement. I agree with you, from everything I've read, I think that the estate of his grandfather must pay a gift tax but my son would not be liable for any taxes.

The grandfather's estate may not have to pay any gift tax either....it depends on the size of the estate.