Interesting situation, not sure which route to go...

[MattNJ]

Originally Posted by mortimer

I don't think you have enough information to say this.

No where did MattNJ say that the dad is renting out the house.
No where did MattNJ say when the dad inherited the house.
If it was inherited in, say, 2005 thru 2009 it might have (probably) lost value.

Dad's basis is the value at the time of transfer.


The limit is $13k ( previously $12k ).

Even if you exceed the limit, you don't have to pay a tax,
but you have to file a return. You can give a $million tax-free.

My grandmother purchased the house in 2006 when the prices were outrageous. They purchased the dump for 388k, unfortunately she only lived one day in the house until she became very ill, spent the 3 a week or 2 in the hospital and then passed away.

My father inherited the house that was paid off. He did rent it out to me to cover the taxes and utilitied for the last 4 years. Now my wife and I want to buy it. It is probably worth 330-350k tops.

He only wants to sell it to me for 200k for he can pay his mortgage off. If he sells it to me for 200k are you telling me he can give me 100k equity gift tax free to use as a down payment and I will only have to finance 100k?

[SmartMoney]

Originally Posted by mortimer

I don't think you have enough information to say this.

No where did MattNJ say that the dad is renting out the house.
No where did MattNJ say when the dad inherited the house.
If it was inherited in, say, 2005 thru 2009 it might have (probably) lost value.

Dad's basis is the value at the time of transfer.


The limit is $13k ( previously $12k ).

Even if you exceed the limit, you don't have to pay a tax,
but you have to file a return. You can give a $million tax-free.

Agreed, I was just laying out the traps they are setting up for themselves without proper advice. Perhaps you missed my question mark? I stand by my initial assessment, both father and son would be nuts not to bypass professional advice.

[mortimer]

Originally Posted by MattNJ

My father inherited the house ... worth 330-350k tops.

It sounds like he has a tax loss. I'm assuming that he filed a Schedule E
while he rented it to you and took depreciation and deducted stuff.
Whether or not he did, the advice from SmartMoney is spot-on. Get
advice from a professional and not anonymous posters on this forum.

It might take $200-300 of a lawyer's time and maybe twice that of an
accountant's time ( or less ) to make sure that nothing gets the attention
of the IRS in a negative way. You are, after all, dealing with an asset
that is worth more than a $quarter-million.

I don't know, but I assume that dad can only take the tax loss for the
difference between what it was worth when he inherited it and the
current fair market value and not the $200k sale price.

For all I know, a lawyer might advise you to buy it for FMV and have
your father own a 2nd mortgage that he gifts back to you. It could
get complicated and way beyond what I know.

Originally Posted by MattNJ

He only wants to sell it to me for 200k ... are you
telling me he can give me 100k equity gift tax free ...

That part is correct. He'll have to file IRS Form 709
to account for the $130k-140k gift.

Originally Posted by MattNJ

... to use as a down payment and
I will onlyhave to finance 100k?

No. Dad wants $200k to pay off the other mortgage.

If you are going to hand him that money, you'll have to finance
the whole thing. You are getting a house worth $330k-340k.

Therefore, after you finance the $200k, you'll have the
$130k-140k difference as equity the day you make the buy.

[mortimer]

I'm adding to this thread because something came up in email
that is pertinant to the questions asked here:
==============================================

Originally Posted by MattNJ

But if my dad sells me the house at 200k will be be
taxed on the amount under market value?

You can't be taxed on a gift to you.

Let's say the house is worth exactly $300k and dad sells it
to you at exactly $200k.

I think:
======
If you buy the house at $200k and your dad gifts you $100k
then your basis in the house should still be $300k.

If you later sell it for $250k, you would have a
non-deductible loss of $50k.

If you later sell it for $350k, you would have a
non-taxable gain of $50k.

AGAIN: I'm not sure and that's why you need good
tax advice for this transaction. It's totally worth it.

It's quite possible that a gifted amount is not allowable in
a later calculation of the basis for the value of an asset.

[MattNJ]

If market value is $300k, and I buy it for $200k instead of being taxed by the IRS we can categorize that as a $100k gift?

Also-

If he gave me a gift of equity for $100k could I use that as a down payment and finance $100k?

So right there he is pretty much giving me a gift of $200k

[mortimer]

Originally Posted by MattNJ

If market value is $300k, and I buy it for $200k instead of
being taxed by the IRS we can categorize that as a $100k gift?

The IRS won't tax this purchase no matter what you do.

If he just gives you the whole house for nothing, it's not taxed.

If he sells it for $1.00 or $300k, it's not a taxable event.

Originally Posted by MattNJ

If he gave me a gift of equity for $100k could I
use that as a down payment and finance $100k?

The downpaymement is just what portion of the payment for
the house that is not financed by a loan.

If he gives you a gift of equity for $100k you will use that as
a down payment and you still have to finance $200k.

Here is one possibility:

Value of house ...... = $300k
Money you give dad = $200k
Gift from dad ......... = $100k <--- this is your "downpayment."

Your scenario above completely ignores that fact that dad wants
you to give him $200k so he can pay his other mortgage. That is
what he wants. Therefore, you have to give him $200k.

Therefore, you have to finance $200k since you don't have
a pile of cash worth $100k sitting around.

Originally Posted by MattNJ

So right there he is pretty much giving me a gift of $200k

If he sold the house to you for $100k then that
would be a gift of $200k.

Your second post ( post #3 ) said that dad wants and needs $200k.
You have to finance that much. There is no other way around it.