Buy Home Or Receive As Gift: Tax Implications

• Print Articles

Summary: What is the best way to give your home to another family member without incurring a large tax? Ilyce warns against transferring a house into another family's name because of gift tax implications. Instead the family member could buy the home from you, while you become the lender, loaning 100% of the money. This way you can avoid the gift tax, and pay a mortgage payment every month instead of rent.

Q: My mother in-law has a house in Los Angeles that is fully paid for. She rents it out to another family. My wife and I have been renting our home in Los Angeles and we are amazed and concerned about how expensive it's getting to purchase a house here.

My mother in-law wants to transfer her house to our name and we would pay her the rental fee she currently gets from the other family.

But, I don't know where to even begin on this matter, who to approach or what costs there would be to us.

A: What a nice mother-in-law. But you don't really want her to give you the house, because that would likely trigger a huge gift tax and count against the amount she is allowed to pass down tax-free when she dies.

However, it sounds like the transaction could work as a purchase. You purchase the house from her and she acts as the bank and finances 100 percent of the purchase. You would then pay her as if she were your mortgage lender (which she would be). When she dies, if the house isn't already paid off, she can forgive what is left of the loan, or, if you must repay it to the estate, you can find another lender.

Another benefit is that because you're paying interest on a loan instead of rent, that portion of your monthly payment may be deductible if you itemize on your federal income tax return.

I suggest that you, your spouse, and your mother-in-law spend some time with a real estate attorney or estate attorney who can help you put together the documentation you need to purchase this property, which in California includes several state-mandated disclosure forms.

The goals of the transaction should be to have title transferred into your name, to put the same (or more) cash in your mother-in-law's pocket each month (which would be structured as the mortgage payment, so you could write off the interest if you're eligible to do so), and to avoid triggering the gift tax.

Jan. 19, 2009.

See more articles on this topic by clicking on the "RELATED ARTICLES" above and to the right.

We have over 5000 articles on Real Estate Advice, Personal Finance Advice and Consumer Advice on our site. We encourage you to look at these articles. As always, if you have a comment on our articles, don't forget to post your comment below. We thank you for coming to ThinkGlink.com.

© Ilyce R. Glink. All rights reserved. This content may not be used, distributed, syndicated, compiled or excerpted in any medium or form without written authorization from Think Glink, Inc. For information on syndicating ThinkGlink.com please contact us.

Related Topics

• gift tax, 
• home buying, 
• mortgage, 
• mortgage loan, 
• real estate law, 
• tax deduction, 
• taxes

Rate this article

• Average rating of 4.7 from 4 readers

Comments

View all ThinkGlink events