Moving in with my parents

[bassmaster]

Kind of. I'm going to build a house, and my aging parents are going to live in the guest house.

They will put down the deposit (about 50% of home cost).

I will assume the mortgage, which is important for the tax break.

So the question is: legally, financially, how do we do this? My dad is retired-ish. So if we have a joint mortgage I assume I would only be able to deduct 50% of the mortgage interest? And if my dad gave me the money for the house outright I would have to pay a lot of tax on this gift right?

[DMFA]

Gift tax exemptions can be front-loaded over five years, and they can be given from both spouses you both spouses. So dad can give $14,000 x 5 ($70,000) to each you and spouse, and mom can do the same, to a total of $280,000 between the both of you.

Idk if it has to count as a gift if they pay the bank and not you...

[bassmaster]

Thank you for the reply, didnt' know that about front loading the exemptions. Maybe this will be part of the solution.

The gift/investment will be a few times that 280k. Anyone have any alternative or complimentary ideas?

[Zaphod]

This doesnt seem like that difficult a thing if you're building. The way people on here talk about it you have a construction loan and then a mortgage later or something. Lots of opportunity to have one or the other pay a side of it. This really should be simple to figure it out with a little sleuthing.

[StarTrekDoc]

The easy part is to have them on the title and mortgage with you as the primary so the mortgage is reported in your name at year's end.  You do have to look out for step up basis upon death is the issue if you have them on title.....all this is best handled by BOTH real estate lawyer and estate planner.

In Cali, I would say community property with dad and you on title -- keeps the $$ and lines clean.  You should be able to claim the entire interest on your form as it will have your name on it and just make sure it's the FIRST name so you don't have to check the nasty box on the form to say it's otherwise reported (and a nasty flag for audit I bet too)

 

[spiritrider]

Note: The five-year front loading of gifts is only allowed for 529 contributions. It is not allowed with general gifts.

Gifts are not generally taxable to the donee, rather the donor. Also, there is seldom any actual tax due.

First, there is an annual exclusion (2017 = $14K). This can be between each donor/donee. Two parents can gift $56K to a couple. Then gift amounts in excess of the annual exclusion are applied to the unified estate/gift tax lifetime exclusion (2017 = $5.49M/spouse. Only when all the exclusions have been used, is any tax due to the donor(s).

I am not a real estate lawyer. However, as has been mentioned, the best way to handle this is a joint purchase. I believe the party actually paying the mortgage/property taxes gets to take the deduction. This should also alleviate the need for the parents to pay a FMV rent. Finally, if they leave their interest in the property to you, it should receive step-up basis.

[bassmaster]

Wow lots of helpful information, thank you.

How about this:

Let's say the total project is 1m. Can I cut out the bank and just get a 1m mortgage from my dad?

That way I pay all the interest to him instead of the bank, and I still get a mortgage interest tax deduction. Of course dad would have to pay tax on the mortgage interest, but that seems reasonable. It would provide him with a steady monthly income in retirement.

[Craigy]

1) Are you married/do you want to get married/have a significant other.

2) Does your spouse want to live next door to the in-laws?  

 

Also, no you cannot do multiple annual exclusion gifts in the same year.  You can do $14k on 12/31 and another $14k on 1/1 but there is no taking multiple years in a single year without incurring gift tax.

[StarTrekDoc]

Again double check with real estate lawyer -  for private mortgage -- needs to be secured and filed on Title as lien, 1099 filing and claim on dad's 1040.  Who knows what else, but that's just the top of my head on the logistics of a basic mortgage.

[adventure]

Is your savings and and whatever 14k/year gifts from them to you (and your spouse) enough to for you to buy the property? Perhaps your parents can then give you then rest of the 50%, at 14k/year/etc etc until all paid up?

Could they also pay "rent" to you? Sounds like you have a beautiful lovely lot and they'd need to really pay a huge amount a rent each month for the wonderful privilege of living on such a wonderful lavish property with amazing features, lawns, vistas, and flowers.

That'd give you full ownership, and you'd still get some cash sooner rather than later?

 

Also, for conventional mortgages, banks usually check the past 2 months (sometimes past quarter) for any incoming funds into your checking account(s). So, if you're going to get a "gift", if it's given with in the last 2 months, your parents will need to provide a "gift letter" stating that said funds are indeed a gift, and never need to be repaid. Not a huge deal, but a little hassle.