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  1. #1
    megamooo is offline Member
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    Mar 2007
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    Inter Family Transfer Tax Implications

    What is the name of your state? Delaware

    Hello,

    We have owned a vacation home for about 5 years. We would now like to complete an inter-family transfer of the property to my parents. The consideration we will receive from them is the payoff of the current mortgage on the home. We contacted a real estate attorney to handle the transfer; she advised that a deed transfer between family members is a fairly simple process. She did, however suggest that we obtain more information with regard to any tax consequences to us or my parents. As the mortgage balance to be paid off is substantially less than the value of the property, and there will not be another mortgage on the property (my parents will own the home free and clear), what if any taxes will this transfer create?

    Thanks in advance for your information,
    Lisa
  2. #2
    FlyingRon is offline Senior Member
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    inTRA

    It's an intrafamily transfer. Intra->inside.

    The mortgage is meaningless for tax purposes.

    The house was sold for the price amount paid (coincidentally the mortgage balance).
    The capital gain will be the difference between the basis (original purchase less capital improvements and certain sale expenses) and the amount of the sale. Since this isn't your personal residence, you'll pay the federal long term capital gains rate of 15% on the profit as well as whatever state taxes there may be.

    Of course unless you refinanced at some point to take cash out, it sounds like there is no capital gain (as the mortgage payoff is certain to be less than the original purchase price).

    I assume this was never depreciated as a business propery.
  3. #3
    LdiJ is offline Senior Member
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    Quote Originally Posted by FlyingRon View Post
    It's an intrafamily transfer. Intra->inside.

    The mortgage is meaningless for tax purposes.

    The house was sold for the price amount paid (coincidentally the mortgage balance).
    The capital gain will be the difference between the basis (original purchase less capital improvements and certain sale expenses) and the amount of the sale. Since this isn't your personal residence, you'll pay the federal long term capital gains rate of 15% on the profit as well as whatever state taxes there may be.

    Of course unless you refinanced at some point to take cash out, it sounds like there is no capital gain (as the mortgage payoff is certain to be less than the original purchase price).

    I assume this was never depreciated as a business propery.
    They are also gifting the equity in the home to the parents as well. That might necessitate the filing of a gift tax return. She could give each of her parents 12k, and her husband can give each of her parents 12k (total of 48k) but if the equity is more than that, it will be necessary to file a gift tax return. There would be no actually tax due if they have not exceeded their lifetime exclusion (1 million) for gifting, but the return would have to be filed.
  4. #4
    megamooo is offline Member
    Join Date
    Mar 2007
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    Thanks so much for all of your info. So, if I am understanding correctly, if the home's current basis is $220K, and the consideration (mortgage balance payoff) is $120K, there would be a $100K loss or "gift" to our parents. And as this $100K does not exceed our
    $1MM lifetime allowance, a 2008 gift return would be filed but no tax consequence incurred. Any other repurcussions that we should be aware of?

    Thanks again!
    Lisa

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