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Old 07-08-2016, 04:52 AM
 
2,756 posts, read 3,792,083 times
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Quote:
Originally Posted by jackmichigan View Post
Where is your mother going to live after you "buy" the property from her? (Which may not be a good idea tax-wise, assuming that she may intend to leave the property to you.) Instead, check into a Home Equity loan. If need be, since you're not concerned about mixing family and money, simply co-sign on the loan.
She's going to continue living in the home. The home is going to be left to us.

We are now thinking that the home should stay in her name so are wondering about tax consequences for paying off her mortgage. Tax consequences for her as well as us.

Thanks!
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Old 07-08-2016, 05:24 AM
 
Location: Riverside Ca
22,146 posts, read 33,381,488 times
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Quote:
Originally Posted by txdemo View Post
What if we were to just pay off the balance of 45k? What are the tax implications?
This is what I would do. Why pay loan costs to a lender (adding yo your total cost) if you can just make the payments. At 45k the write off is probably very minimal. I would just hang that mortgage out to zero ASAP and kill it.
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Old 07-08-2016, 06:42 AM
 
8,562 posts, read 12,339,419 times
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Quote:
Originally Posted by txdemo View Post
She's going to continue living in the home. The home is going to be left to us.

We are now thinking that the home should stay in her name so are wondering about tax consequences for paying off her mortgage. Tax consequences for her as well as us.

Thanks!
In that case, if you venture into any type of "sale", make sure that your mother retains a life estate in the property--written into the Deed. That way, once she passes you will still receive the stepped-up basis in the property, just as if she had left it to you in her will.

But...since you're already paying for her mortgage expenses now, you should just consider paying off the mortgage. It's not providing much, if any, tax deduction. I can't think of any negative tax consequences for you.

Overriding question: are her other estate plans in order? You should make sure that you're named as a transfer-on-death beneficiary on all of her bank, stock or other asset accounts. Or, have a Revocable Living Trust in place. You can avoid probate and make sure that all of her assets transfer seamlessly.
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Old 07-08-2016, 07:17 AM
 
2,756 posts, read 3,792,083 times
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Quote:
Originally Posted by jackmichigan View Post
In that case, if you venture into any type of "sale", make sure that your mother retains a life estate in the property--written into the Deed. That way, once she passes you will still receive the stepped-up basis in the property, just as if she had left it to you in her will.

But...since you're already paying for her mortgage expenses now, you should just consider paying off the mortgage. It's not providing much, if any, tax deduction. I can't think of any negative tax consequences for you.

Overriding question: are her other estate plans in order? You should make sure that you're named as a transfer-on-death beneficiary on all of her bank, stock or other asset accounts. Or, have a Revocable Living Trust in place. You can avoid probate and make sure that all of her assets transfer seamlessly.
She already has a will that leaves the house to us. Is that sufficient to provide for stepped-up basis in the property?

We do have a Revocable Living Trust in place.

Thanks for your advice.
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Old 07-08-2016, 07:38 AM
 
Location: Raleigh, NC
19,397 posts, read 27,703,839 times
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Jack already provided great information. I'll add that if you do pay off mom's mortgage of $45k, there will be gift tax firms to vimpkete in your next tax return. Assuming your estate isn't over 5 million- something, there will be no gift tax due. But forms are required.
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Old 07-08-2016, 08:41 AM
 
8,562 posts, read 12,339,419 times
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Quote:
Originally Posted by txdemo View Post
She already has a will that leaves the house to us. Is that sufficient to provide for stepped-up basis in the property?

We do have a Revocable Living Trust in place.

Thanks for your advice.
Yes, if you receive property through a Will you will receive the stepped-up basis. But it's even better that she has a Revocable Living Trust--provided that the house and other assets are actually titled in the Trust's name. Having a Trust on paper is not sufficient.

My parents set up a Revocable Living Trust but they never funded it. Instead, we made sure that the beneficiaries were in place on all accounts...and we transferred all real estate (primary & second house) with my mother retaining a life estate in the properties.

Quote:
Originally Posted by Jkgourmet View Post
Jack already provided great information. I'll add that if you do pay off mom's mortgage of $45k, there will be gift tax firms to vimpkete in your next tax return. Assuming your estate isn't over 5 million- something, there will be no gift tax due. But forms are required.
Good point. With only $45K in play, however, they can easily avoid even having to fill out any forms if both the OP and his brother each contribute to the mortgage payoff equally, and if they structure the payoff over two tax years, e.g. this year and next January.
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Old 07-08-2016, 05:02 PM
 
Location: Atlanta, GA
14,834 posts, read 7,386,464 times
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Quote:
Originally Posted by txdemo View Post
She's going to continue living in the home. The home is going to be left to us.

We are now thinking that the home should stay in her name so are wondering about tax consequences for paying off her mortgage. Tax consequences for her as well as us.

Thanks!
The only tax consequences would be that your taxable income might increase slightly from not having the mortgage interest deduction anymore. However since you will no longer be paying that mortgage payment, you will still have more usable income anyway. In other words, it's an obvious benefit if you can afford to do so.
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Old 07-08-2016, 10:05 PM
 
1,403 posts, read 1,532,173 times
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Quote:
Originally Posted by txdemo View Post
She's going to continue living in the home. The home is going to be left to us.

We are now thinking that the home should stay in her name so are wondering about tax consequences for paying off her mortgage. Tax consequences for her as well as us.

Thanks!
There shouldn't be any tax consequences... assuming a few things.

If you and your brother are married, there is enough room to gift the money to your mom without any taxable events. In 2015, the annual gifting amount was $14,000/person. Write a check on a joint account with your spouse, and that gives $28,000/ couple to pay off the mortgage. If you brother doesn't have the cash and you do, gift him the money and he and his spouse can then gift that to your mom to pay off the mortgage.

No IRS forms needed as long as you stay under the $14,000/person payment - you don't need to report the payment, and your mom doesn't need to report it as income.
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Old 07-09-2016, 05:28 AM
 
2,756 posts, read 3,792,083 times
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Quote:
Originally Posted by Joe461 View Post
There shouldn't be any tax consequences... assuming a few things.

If you and your brother are married, there is enough room to gift the money to your mom without any taxable events. In 2015, the annual gifting amount was $14,000/person. Write a check on a joint account with your spouse, and that gives $28,000/ couple to pay off the mortgage. If you brother doesn't have the cash and you do, gift him the money and he and his spouse can then gift that to your mom to pay off the mortgage.

No IRS forms needed as long as you stay under the $14,000/person payment - you don't need to report the payment, and your mom doesn't need to report it as income.
Thank you for this advice!
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