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That difference in actual vs market rental rate for the next 20 years "encumbers" the property, thereby reducing the property's fair market value today. So, instead of the house being worth $500,000 today, the encumbrance reduces its value to, say, $300,000.
Not really. If you believed that, nobody would ever buy, improve, and flip a house. Real estate is worth what a buyer is willing to pay for it. Lots of people buy homes for $300K, do mostly low cost cosmetic improvements to it, and sell it a few years later for $500K. In an outlier market like, say, Silicon Valley, every house in town goes up 1.5x in a couple of years. My sister's house in Vancouver, BC doubled in the last two years. If she sold it (for CDN $3 million), the buyer would tear it down and build a new house with the same square footage. The dirt is worth $3 million. The house is worth zero.
Say someone's parents owned a paid off house worth 500,000. Can they sell their house to one of their kids for a dollar before death? Will uncle Sam stick his nose into this situation? Thoughts
Umm.... If you inherit a house it is not federally taxable (according to my attorney aka Mrs5150)
So what is the point of selling your house for a dollar to your kid before you die?
Just guessing here, but if the OP is considering this bad idea, what other bogus plans are in place? Joint checking accounts, cutting people out of wills, gift to grands? Sounds like someone needs an estate planner.
If the house is worth $300,000 and the parents sold it to one of their kids for $1, the IRS can look at it several ways.
1: A fake transaction, to try to beat taxes selling it for $1 to a close relative. They could very well declare that it was not a true value transaction, and that the other $299,999 was a gift. This triggers gift tax. I saw this happen on a home back in the 1970s, when I was an investment real estate broker. In a university real estate law class, we were taught that selling someone that is a relative a home for only a very small amount is not a arms length transaction as the law says, and will trigger gift tax.
2:Remember you are only allowed to gift one person $14,000 maximum in one year, and any value over that is taxed by a gift tax. In other words a home worth $300,000, bought for $1 triggers $285,000 of property to be taxed as a gift.
This is just a "in theory" situation. Lots to think about. Thanks for the replies. Say someone wins the lottery.....say take home after taxes lump sum would be about 7 million. He could give the ticket to his parents and have a trust set up with 4,000,000 being willed to the son when the parents die. the parents would buy a 600,000 house for the son to live in which would really be the sons. 400,000 to the parents to do what they want with (payment for claiming the ticket and to help them). And the parents would give 2,000,000 in cash to the son(the rightful owner of the ticket.
So the son sells his house he had before the winning lottery ticket and has a few hundred thousand of cash. Then Lives in the paid for house. Still works full time. And uses the 2,000,000 over the course of 15 to 20 years for gas,groceries, utilities,entertainment, gifts, etc.
My mother sold me her condo for above market price when she was quite old.
I then got to take a capital loss deduction when I sold the condo at market price after she passed away. Meanwhile she got my money, which she needed to live. What was left, I inherited.
I am not a tax professional or a lawyer but this worked for me.
This is just a "in theory" situation. Lots to think about. Thanks for the replies. Say someone wins the lottery.....say take home after taxes lump sum would be about 7 million. He could give the ticket to his parents and have a trust set up with 4,000,000 being willed to the son when the parents die. the parents would buy a 600,000 house for the son to live in which would really be the sons. 400,000 to the parents to do what they want with (payment for claiming the ticket and to help them). And the parents would give 2,000,000 in cash to the son(the rightful owner of the ticket.
So the son sells his house he had before the winning lottery ticket and has a few hundred thousand of cash. Then Lives in the paid for house. Still works full time. And uses the 2,000,000 over the course of 15 to 20 years for gas,groceries, utilities,entertainment, gifts, etc.
Thoughts?
My thoughts are that aa guy asking these kinds of questions is a guy who needs professional financial advice before he makes any financial decisions at all. That type of advice is not found on message boards.
My mother sold me her condo for above market price when she was quite old.
I then got to take a capital loss deduction when I sold the condo at market price after she passed away. Meanwhile she got my money, which she needed to live. What was left, I inherited.
I am not a tax professional or a lawyer but this worked for me.
you would have to be able to prove you did give her the funds at an above market price too . so i don't see the benefit here unless you lie and don't give her the money .
if the house is worth 500k and i pay 600k but sell it for 500k and take a 100k loss , i am still behind and paid to much and have less money in my piggy bank even writing off the loss , i see no benefit
Don't forget when you inherit a property it's wise to get an official appraisal to establish the value of the home. Don't rely on a RE agent to provide that information.
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