info
Google Groups no longer supports new Usenet posts or subscriptions. Historical content remains viewable.
Dismiss
Advice on buying Grandpa's house
88 views
Skip to first unread message
sdol...@yahoo.com
May 7, 2016, 9:02:48 PM5/7/16
to
Advice needed
My grandparent is 84 and wants to sell his house worth $400,000 to me for what he still owes on the loan amount of $150,000. He just wants to to live out his years in the house rent free. Then I'll probably rent it out for a while and then maybe someday I will go back to the house and live in it. In trying to shelter from taxes, what is the best way to architect a transaction to establish a higher cost basis? IRS says it establishes based on contract price, so would it make sense to "sell it for $400k" but gift back $250k? Just trying to set myself for when I go to sell it years from now. Thoughts or better ideas?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
My grandparent is 84 and wants to sell his house worth $400,000 to me for what he still owes on the loan amount of $150,000. He just wants to to live out his years in the house rent free. Then I'll probably rent it out for a while and then maybe someday I will go back to the house and live in it. In trying to shelter from taxes, what is the best way to architect a transaction to establish a higher cost basis? IRS says it establishes based on contract price, so would it make sense to "sell it for $400k" but gift back $250k? Just trying to set myself for when I go to sell it years from now. Thoughts or better ideas?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
Stuart Bronstein
May 8, 2016, 12:33:55 AM5/8/16
to
sdol...@yahoo.com wrote:
> My grandparent is 84 and wants to sell his house worth $400,000 to
> me for what he still owes on the loan amount of $150,000. He just
> wants to to live out his years in the house rent free. Then I'll
> probably rent it out for a while and then maybe someday I will go
> back to the house and live in it. In trying to shelter from
> taxes, what is the best way to architect a transaction to
> establish a higher cost basis? IRS says it establishes based on
> contract price, so would it make sense to "sell it for $400k" but
> gift back $250k? Just trying to set myself for when I go to sell
> it years from now. Thoughts or better ideas?
If you buy the house from him now, that is the worst way for you to
> My grandparent is 84 and wants to sell his house worth $400,000 to
> me for what he still owes on the loan amount of $150,000. He just
> wants to to live out his years in the house rent free. Then I'll
> probably rent it out for a while and then maybe someday I will go
> back to the house and live in it. In trying to shelter from
> taxes, what is the best way to architect a transaction to
> establish a higher cost basis? IRS says it establishes based on
> contract price, so would it make sense to "sell it for $400k" but
> gift back $250k? Just trying to set myself for when I go to sell
> it years from now. Thoughts or better ideas?
save taxes. If you buy the house for $150,000, first your grandparent
will incur (but not necessarily pay) a gift tax on $250,000, and you
will get either a basis of $150,000 or your grandfather's basis.
The best way to have an increased basis is for you to inherit the
house. But if you don't buy it, and you make mortgage payments anyway
on the understanding that you will inherit it, then the interest may
not be deductible for you.
So some combination of those two things is in order.
>From a tax standpoint it seems that the best approach would be to buy
37.5% of the house (representing the share that $150,000 bears to the
$400,000 full value), and take title as a joint tenant. That way you
will legitimately owe the money to the bank, you will be an owner and
can deduct the mortgage interest. And then when your grandparent dies
you will have a $150,000 basis in your share, and you will get a
stepped up basis in the remaining 62.5% that you will inherit.
--
Stu
http://DownToEarthLawyer.com
Reggie
May 8, 2016, 1:23:40 PM5/8/16
to
"Stuart Bronstein" <spam...@lexregia.com> wrote in message
news:XnsA601DAC0173B2...@130.133.4.11...
1. are their other potential heirs that may get miffed about this? Make
sure you do this, whatever "this" turns out to be, with consideration of all
matters, not just tax.
2. if grandpa gifts the house subject to a life estate, it will not be a
gift of a present interest and thus remains included in grandpa's decedent's
estate when the time come, and thus entitled to a step up in basis.
3. if grandpa retains a life estate, he is entitled to rental proceeds, etc.
should he move out of the house before his death.
4. if grandpa gifts the house subject to a life estate, can the recipient
the deduct mortgage interest payments as some sort of investment interest?
5. if recipient is considering buying the house for $150k, does that mean
recipient has $150k to pay off the mortgage and clean this up a bit?
Stuart Bronstein
May 9, 2016, 1:04:19 PM5/9/16
to
"Reggie" <Reg...@wantsnospam.com> wrote:
> Some additional thoughts:
>
> 1. are their other potential heirs that may get miffed about this?
> Make sure you do this, whatever "this" turns out to be, with
> consideration of all matters, not just tax.
Good advice.
> Some additional thoughts:
>
> 1. are their other potential heirs that may get miffed about this?
> Make sure you do this, whatever "this" turns out to be, with
> consideration of all matters, not just tax.
> 2. if grandpa gifts the house subject to a life estate, it will
> not be a gift of a present interest and thus remains included in
> grandpa's decedent's estate when the time come, and thus entitled
> to a step up in basis.
interest.
A gift of either a life estate or a joint interest will increase the
basis on grandpa's death, and will probably give OP grounds to deduct
mortgage interest he may pay. However if OP starts making payments
on the mortgage, the IRS (if they notice) will want to treat at least
part of OP's interest in the house as paid for with sufficient
consideration. That part would not be eligible for a stepped up
basis.
> 3. if grandpa retains a life estate, he is entitled to rental
> proceeds, etc. should he move out of the house before his death.
As long as the life estate actually expires on his death. The
> 3. if grandpa retains a life estate, he is entitled to rental
> proceeds, etc. should he move out of the house before his death.
paperwork has to be careful to make sure that is the case. Otherwise
OP may not get a stepped up basis.
> 4. if grandpa gifts the house subject to a life estate, can the
> recipient the deduct mortgage interest payments as some sort of
> investment interest?
property.
> 5. if recipient is considering buying the house for $150k, does
> that mean recipient has $150k to pay off the mortgage and clean
> this up a bit?
with any cash. There is a risk to that, because when grandpa dies,
the lender will likely have the right to call the loan at that time,
even if all mortgage payments are current have been timely made. So
OP will have to refinance at that point anyway. So OP might want to
consider refinancing now.
--
Stu
http://DownToEarthLawyer.com
Rodney Farber
Jun 1, 2016, 10:52:50 AM6/1/16
to
On Sunday, May 8, 2016 at 4:33:55 AM UTC, Stuart Bronstein wrote:
>
> >From a tax standpoint it seems that the best approach would be to buy
> 37.5% of the house (representing the share that $150,000 bears to the
> $400,000 full value), and take title as a joint tenant. That way you
> will legitimately owe the money to the bank, you will be an owner and
> can deduct the mortgage interest. And then when your grandparent dies
> you will have a $150,000 basis in your share, and you will get a
> stepped up basis in the remaining 62.5% that you will inherit.
>
Assuming grandpa's total basis in the house is less than $400k, wouldn't grandpa have to pay capital gains if he sold 37.5% of the property for $150k?
>
> >From a tax standpoint it seems that the best approach would be to buy
> 37.5% of the house (representing the share that $150,000 bears to the
> $400,000 full value), and take title as a joint tenant. That way you
> will legitimately owe the money to the bank, you will be an owner and
> can deduct the mortgage interest. And then when your grandparent dies
> you will have a $150,000 basis in your share, and you will get a
> stepped up basis in the remaining 62.5% that you will inherit.
>
Stuart Bronstein
Jun 2, 2016, 12:27:53 PM6/2/16
to
Rodney Farber <rodney...@gmail.com> wrote:
> Stuart Bronstein wrote:
>>
>> >From a tax standpoint it seems that the best approach would be
>> >to buy
>> 37.5% of the house (representing the share that $150,000 bears to
>> the $400,000 full value), and take title as a joint tenant. That
>> way you will legitimately owe the money to the bank, you will be
>> an owner and can deduct the mortgage interest. And then when
>> your grandparent dies you will have a $150,000 basis in your
>> share, and you will get a stepped up basis in the remaining 62.5%
>> that you will inherit.
>>
> Assuming grandpa's total basis in the house is less than $400k,
> wouldn't grandpa have to pay capital gains if he sold 37.5% of the
> property for $150k?
Assuming grandpa both owned and lived in the property for at least
> Stuart Bronstein wrote:
>>
>> >From a tax standpoint it seems that the best approach would be
>> >to buy
>> 37.5% of the house (representing the share that $150,000 bears to
>> the $400,000 full value), and take title as a joint tenant. That
>> way you will legitimately owe the money to the bank, you will be
>> an owner and can deduct the mortgage interest. And then when
>> your grandparent dies you will have a $150,000 basis in your
>> share, and you will get a stepped up basis in the remaining 62.5%
>> that you will inherit.
>>
> Assuming grandpa's total basis in the house is less than $400k,
> wouldn't grandpa have to pay capital gains if he sold 37.5% of the
> property for $150k?
two years out of the last five, he could sell the property for the
full $400,000 and pay no tax. The first $250,000 is tax free.
--
Stu
http://DownToEarthLawyer.com
0 new messages