Purchase home from parents

[PD21]

In-laws have a second property that I would like to own/buy, about $200,000. What is the best way to go about doing this? They would like to gift it entirely. They were told by their lawyer that they could just "sign the title over" and there would be no tax implications for either of us, which I think is incorrect. They would not be living there. They currently have a HELOC on their residence which they used to buy this second property. Is there a way to avoid the standard mortgage and fees by doing a deed-for-contract? Would this negate any tax deductions? Are they allowed to sell it to us for a cheaper price if I pay cash for the majority?

What would be most mutually beneficial for all parties?

[Craigy]

Do they actually want to gift it to you, or do they want you to give them money?

If they want to gift it to you, let them work out how best to do that with their attorney.

They can give it to you or sell it to you for whatever price they want.  However, they may or may not incur gift taxes depending on how they do it.

[PD21]

They want to gift it but have me pay them back over the next few years.

[adventure]

PD21 wrote:

They were told by their lawyer that they could just “sign the title over” and there would be no tax implications for either of us, which I think is incorrect.

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Probably best to have this double checked.

 

PD21 wrote:

Is there a way to avoid the standard mortgage and fees by doing a deed-for-contract? Would this negate any tax deductions? Are they allowed to sell it to us for a cheaper price if I pay cash for the majority?

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If buying (see @craigy's question) Do you need to borrow money to pay for it? Or can you just write the check?

Thinking outside the box here, and some assumptions made, but: If you need to borrow, and they want to gift, perhaps they could sellers finance, and you'd owe them the equivalent of the gift tax exemption amount each year (14k from each parent, to both you and your spouse, per year = 14*2 *2 = 56k/year.)

Involving a realtor in the transaction could be costly - probably best to avoid. You can work with a title office to help move this along.

[PD21]

I would need to borrow. Thanks for your thoughts and suggestions.

[adventure]

PD21 wrote:

They want to gift it but have me pay them back over the next few years.

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They can provide you financing. You'd do the paperwork to move the title/deed of the property, and then pay them back on whatever terms they offer you. Aka... You don't have to have a bank in the middle.

Whether or not you'd want to owe family money is another question. If it wouldn't take many months to pay them back, that might work for all parties.

[Kamban]

PD21 wrote:

They want to gift it but have me pay them back over the next few years.

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This is not a gift. A gift is something you give to someone and not expect something in return.

What you are describing is a sale to you with delayed payments from you. If that is so it should be cleared up front. You and your wife should have a straight talk about it with her parents - what is the value, how much are they expecting from you, when are they expecting the payments and over how long a time period.

If you do not do that now it will come back to bite you in the b**t and could ruin you relationship with your in-laws or your wife.

[Craigy]

Echoing Kamban, this is not a gift.

Hard to say exactly why they want to make it a gift, perhaps some transfer tax in your state or looking to avoid a capital gain.

I'd look into a seller financing arrangement, if you can stomach the idea of owing your in-laws money  :lol:

 

[jfoxcpacfp]

PD21 wrote:

They want to gift it but have me pay them back over the next few years.

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This isn't a gift, then, but there are various ways you could structure it. If you are paying them back, you need a formal document and should decide upon a price. You'll be able to impute mortgage interest and deduct on Schedule A or Schedule E.

If they sell it to you at a below-market price, the transaction will be part sale, part gift. You or they should speak to a CPA and explain the situation and what each of you are trying to accomplish so you'll get appropriate advice and can make the best decision.