Capital Gain Tax, Lender's "due on sale" and Property Tax

[addson2title]

You are not incorrect but its not quite that simple.

Lets say that you pass away before the house is sold and your son inherits the house. In that instance he would get a step up basis to fair market value as of the date of your death, and would be unlikely to pay ANY capital gains tax if he sells the property within a year or two.

However, if you give 1/2 of the house to him then he doesn't get that full stepped up basis and would end up paying unnecessary capital gains tax.

You have already been given the downsides in other scenarios.

I see the benefit of step-up but I can't live with him until I die. I want him to get his own house and I plan to move to other state when I retire. This is a good time to sell the house and help my son to start a new home in the near future. That's why I try to avoid paying Capital Gain tax.

 

[addson2title]

That you can do. And it will help him get established in his own home, a great way to get him started.

Yes, that's the plan.

 

[addson2title]

Okay, so I don't have to pay CG tax. I choose option (1) so I will NOT take back his proceeds. I want him to use it to put down for his future house.

Taxing Matters,

By the way, why the Gift Amount is calculated based on the FMV of the house but not the Equity in the house?

Thanks,
-V

 

[Taxing Matters]

Taxing Matters,

By the way, why the Gift Amount is calculated based on the FMV of the house but not the Equity in the house?

Because the loan you have against the house is solely your responsibility to pay. Your son is not an obligor on that loan.

 

[HRZ]

There is at least one other tax wrinkle in there...IF you continue to live there or retain a life estate to do so, then for some tax issues the gift is deemed to be incomplete since you did not part with dominion and control....it is completed if you die or give up any dominion and control. ...

I have no doubt there are lots of schemes on how to sidestep capital gains or transfer wealth ...especially in a high tax state like CA ...some work , others do not and many depend on your specific situation ....if son has the economic ability and desire to take over this house it's one thing , but that's apparently not your priority ...your desire is to get out rather soon and if possible minimize taxes on gain . ...not an easy quest ..

 

[Taxing Matters]

There is at least one other tax wrinkle in there...IF you continue to live there or retain a life estate to do so, then for some tax issues the gift is deemed to be incomplete since you did not part with dominion and control....it is completed if you die or give up any dominion and control. ...

The concept to which you refer is an estate/gift tax issue, not an income tax one (and yes, the concept of what amounts to a gift is different for the two types of tax) and moreover does not apply here where the OP is transferring only a half interest in the property and retaining the other half. In short, this isn't something that will create any difficulty for the OP here.

 

[addson2title]

Can my son pay my monthly Mortgage payments?

I mean after I add his name to the Title.
Is he responsible for 1/2 of the mortgage?
If not, does he have to file Gift tax if the total payments exceeding 15K/year?

 

[LdiJ]

Can my son pay my monthly Mortgage payments?

I mean after I add his name to the Title.
Is he responsible for 1/2 of the mortgage?
If not, does he have to file Gift tax if the total payments exceeding 15K/year?

No, he would not be responsible for the mortgage just because you added him to the title. He also would not be responsible to file a gift tax return. That would be your responsibility, not his.