Interesting situation, not sure which route to go... (PMI, pre-approved, rate)
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I made a thread awhile back about my situation and a few of you experts thought of this amazing idea for me to owner finance from my father. It was a great idea! Until I presented it to my dad and he said he needed more cash to refinance his current mortgage. Here is my scenario again...
I am living in a house that was my grandmothers and then became my dads when she passed, It is 100% paid off.
I am now looking to purchase it from my dad for $200K, he is cutting me a great deal because it is work atleast $300k.
I have $20k to put down. (10%)
I have been talking to some lenders and I am pre-approved.
One lender came up with and idea to but the house for $250k and have my father give me a "gift of equity" for $50k out of the house. This way I am putting down 20% to put down, I can save my $20k down payment and I dont have to pay mortgage insurance.
However if I go that route the payments are like $15 more a month more but again I have my $20k and dont need PMI.
Which route do you think is better?
200k 10% down with PMI OR
250k 20% down no PMI
I also feel like there should be a more creative way for both my father and I prosper out of this. There has to be!!
I know there are alot of mortgage gurus out there, can someone please help me out?
(If I forgot something or you have a question just ask )
Does you father realise the money he is going to make from financing that house for you over time verus the cash price he will get by your going thru a lender?
yup I laid out all the numbers for him at 2.5% he would make about 60k in interest and 20k down payment. But he wants the whole 200k to put down so he can refinance his mortgage and retire.
This situation really calls for an experienced tax planner to review both your and your father's situation. There are several reasons that I am aware of:
1 - Capital Gains Tax for your dad. This is not a primary residence and I'm pretty sure Capital Gains taxes are back in play. (Has he been reporting this property on Schedule E?)
2 - If your dad has been writing off that property, any gift on this home can require him to recapture (pay taxes on) any prior depreciation taken on the home.
3 - 2.5% interest? Why not something closer to market? He's already giving you a serious deal on the home by discounting the sales price. A tax professional with experience in tax planning may actually recommend this income stream. There's no where else he could place his money for this (market rate) of return.
4 - Your potential tax liability - if he gives you an asset that is worth 100K, you could be liable on anything over 20K (each parent can give you 10K each year tax free). Just because he sells it to you for 200K, doesn't mean the IRS is going to look at it as 200K. Where is the assessment on this home? Any idea what the tax would be on 80K in income?
The $100 - $200 for professional advice for a single meetiinig could save you both thousands of dollars. This is one situation where you both cannot not afford a consultation. Tax crunch time is over this week. Most schedules free up next week.
Smart Money-
I am nut sure what you mean on your 1st point
Will I be liable to pay taxes on that 100k if if the house gets appraised for 300k?
You need to seek the advice of an accountant, but yes, I am saying you could be liable to pay taxes on any amount above the 10K gift limit per parent to each child per year. This could be a very expensive mistake. Consult a tax professional (on Friday!).
My answer is the same, but here is what we know for 2010 so far. From About.com:
" Th IRS Gift Tax Limit 2010 - What's Going to Happen?
Wednesday September 2, 2009
One of the biggest questions on the horizon for parents and grandparents who like to give away money, is what's going to happen to the IRS Gift Tax Limit in 2010. Much of the confusion centers around the fact that in 2010, for one brief shining moment, the Federal estate tax is going to disappear. While it could hypothetically stay gone, it is scheduled to reappear in 2011, barring an unlikely act of Congress.
So naturally, many are wondering if the disappearance of the estate tax will also mean a disappearance of IRS gift tax limit (properly known as the annual exclusion amount), which can result in a gift tax being levied if too much money is given to anyone besides a spouse or a non-profit.
Sadly, nothing substantial is happening to this rule. There will still be an IRS gift tax limit in 2010, and it's looking more and more like they're going to hold the IRS gift tax limit for 2010 at $13,000 per donor, per recipient.
The only real change, which is nothing to write home about, is that the top gift tax rate will drop to 35% in 2010. But that change too is likely only temporary."
Both you and your dad need to sit down w/ an accountant and map out what you want to do. The couple hundred bucks can save you both thousands. In fact, it will be the best $200 you ever spent. Split it between the two of you - but trust me on this, it's necessary.
1 - Capital Gains Tax for your dad. ...
(Has he been reporting this property on Schedule E?)
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.
Quote:
Originally Posted by SmartMoney
... you could be liable to pay taxes on any amount
above the 10K gift limit per parent to each child per year.
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.
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Don't be cheap and make an expensive mistake!
