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Selling to Son |
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We have owned a rental property for 5 years and want to sell it to our son. We just want him to get a loan for the existing pay off amount for now of $131,00. The house is worth over $300,000, but we know he won't qualify for a loan of that amount. They are telling us we have to write a gift of equity. There is no gift. He is giving us a promisary note for the difference. When he sells the home or refinances he will give us the difference. If we sign a gift of equity won't we have to pay a gift tax and Capital gains tax? What is the best way to sell this house to him? |
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You should be putting all this together with the help of a lawyer who specializes in estate planning, and a CPA.
I can tell you that the two of you are allowed to give your son $24,000 a year with no federal gift taxes due (twice that to him and his wife if he's married.) IN addition, you can give him up to a million dollars tax-free during your lifetime, and it comes off the amount you could leave him free of federal estate taxes at your death (currently two million, but due to change in the next few years.) just because no tax is due, though,doesn't let you out of filing a gift tax return.
On the other hand, you might indeed be considered not to have made any gift. Or you could take back a mortgage and forgive $24,000 of the debt every year if you wanted to. There could be some income tax complications if you hold a mortgage and those need to be explained to you before you decide exactly what to do.
Don't try to figure this out on your own -- get professional help. |
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Edith
Originally published on April 29, 2008 |
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