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Old 02-08-2018, 12:54 PM
 
Location: NC
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Can she get a home equity loan? Get enough to have a lot of cash plus be able to make the payments. Then when she passes, perhaps the house and debt would pass to the heirs, the heirs could sell with stepped up basis (?) and pay off the loan? Crazy idea maybe, since I really don't know the "rules".
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Old 02-08-2018, 01:26 PM
 
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today you need the same criteria to get an equity loan as a mortgage , namely a good solid income .
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Old 02-08-2018, 02:50 PM
 
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Quote:
Originally Posted by nobodysbusiness View Post
To whomever said there is no step up in long term rental properties . . .are you sure about this?

It is my understanding that the value of a property is stepped up in value at the Date of Death (when an appraisal is done) . . .

Please provide citations for no step up in value on rental properties.
For estate tax purposes, they don't call it a step up in value, deducting what it cost and the cost of improvements, etc., from current price. The only thing being considered is the current value at time of death when determining value of rental or personal home, and anything else.

You are right in your understanding. Personal home and rental property are treated the same at time of death. The value at date of death, is not in any way dependent on the former values when purchased, improvements, etc., and the appraised value at death is what is used for estate tax purposes. As your property and other assets are worth less than the exclusion amount, there will be no federal estate taxes to worry about. How treated for state tax purposes depends on state laws, but most follow the federal laws.

This is why, I recommended the mortgage route instead of selling. Sell it and you will have heavy income tax to pay. Due to your mothers age, and health condition, the mortgage route is the one with the least tax consequences. In fact, it has another advantage. The amount of the interest you pay, should be tax deductible unless the law changes due to recent/current tax changes.

As others have already stated, a lot of those ideas posters are giving you, are not going to be allowed by laws that prohibit them. I spent from 1972 until I retired, I was an investment real estate broker, dealing with clients much like a stock broker does. I would buy, sell, and exchange real estate for investors, and we had to do it in ways that were allowed for by laws, and preparing their estate in the event of their death.

I took numerous classes at a major university, trying to keep track of current laws, and what is allowed and not allowed to guide my clients with the possibility we were setting up their estates for their death. You never know when your number is up, and you may be killed in an accident, etc., so their investments had to be set up to their best advantage. In addition very good friends of ours, that we got together 2 or more times a year, was considered the best tax attorney/CPA (he was both), for saving taxes and estates in the entire country.

Chuck was so good, when the tax haven laws were designed and the Grand Cayman Islands became the big tax haven it is, Chuck wrote their laws. I know how he was respected by them, as Chuck and I and our wives were at a large conference, and training classes in the Grand Cayman Islands in 1977. I learned about Chuck's part directly from their head of government of the GCIs, that sat directly ahead of me, and how they respected him. Directly in front of me, sat the English equivalent of the British Prime Minister, who because of Chuck I got to know at breaks. (It is part of the British Empire.)

Chuck spent a lot of time, telling me why certain things are not legal for tax purposes, and what can be done and how it could be done to help my clients.The four of us sat together for 10 days at the conference and took our meals together. He was the one that told me about the mortgage method, when someone due to age or health only has at most a few years to live.
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Old 02-08-2018, 04:56 PM
 
Location: VT; previously MD & NJ
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Quote:
Originally Posted by mathjak107 View Post
today you need the same criteria to get an equity loan as a mortgage , namely a good solid income .
It's a rental, so there is some income. Plus whatever mom's other income might be.
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Old 02-08-2018, 05:01 PM
 
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It may be tough. I never imagined how tough it could be to get mortgages today . We have a multiple 7 figure portfolio and 3 banks said if we wanted a mortgage it is a toss up today. We are retired and the loans today are sold and the income requirements and what they can consider income is tough without a job
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Old 02-08-2018, 06:00 PM
 
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mathjak is right. My mother could not qualify for a loan larger than maybe 2K. Makes no sense to even try even given the huge amount of equity in the property. Reverse mortgages are a bad deal. Banks rarely loan more than about 40% LTV and she'd have to move in and then we'd have to hire a 24/7 private aide for her, not to mention roughly 40K in loan fees. Again, makes no sense. Given she needs the cash, a sale is the only route. The CPA I spoke with estimates roughly 450K would be left over after taxes and commissions/fees. 2/3 pie is better than no pie. I gotta be philosophical about the matter and figure the money goes to a worthy cause---buying more guns and bombs to fight North Korea after they bomb us.
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Old 02-08-2018, 06:42 PM
 
Location: Lone Mountain Las Vegas NV
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Quote:
Originally Posted by thrillobyte View Post
mathjak is right. My mother could not qualify for a loan larger than maybe 2K. Makes no sense to even try even given the huge amount of equity in the property. Reverse mortgages are a bad deal. Banks rarely loan more than about 40% LTV and she'd have to move in and then we'd have to hire a 24/7 private aide for her, not to mention roughly 40K in loan fees. Again, makes no sense. Given she needs the cash, a sale is the only route. The CPA I spoke with estimates roughly 450K would be left over after taxes and commissions/fees. 2/3 pie is better than no pie. I gotta be philosophical about the matter and figure the money goes to a worthy cause---buying more guns and bombs to fight North Korea after they bomb us.
She gets no income from the property? I would expect a $700K property to produce $35,000 to $45,000 a year in income. And no SS? No retirement? No investments?

She could well be trapped but I would bet you she can float a 50 or 60% mortgage in the private money market. End up paying 6 or 7% for it but that still likely beats selling and paying. Get yourself a good accountant who does this sort of thing. Got to be a better outcome.
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Old 02-08-2018, 08:18 PM
 
11,160 posts, read 8,567,464 times
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Quote:
Originally Posted by thrillobyte View Post
mathjak is right. My mother could not qualify for a loan larger than maybe 2K. Makes no sense to even try even given the huge amount of equity in the property. Reverse mortgages are a bad deal. Banks rarely loan more than about 40% LTV and she'd have to move in and then we'd have to hire a 24/7 private aide for her, not to mention roughly 40K in loan fees. Again, makes no sense. Given she needs the cash, a sale is the only route. The CPA I spoke with estimates roughly 450K would be left over after taxes and commissions/fees. 2/3 pie is better than no pie. I gotta be philosophical about the matter and figure the money goes to a worthy cause---buying more guns and bombs to fight North Korea after they bomb us.
Or see it as paying for the nursing home care for rich people who "manipulate" their assets to get Medicaid.
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Old 02-08-2018, 09:55 PM
 
8,980 posts, read 8,125,611 times
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Quote:
Originally Posted by thrillobyte View Post
mathjak is right. My mother could not qualify for a loan larger than maybe 2K. Makes no sense to even try even given the huge amount of equity in the property. Reverse mortgages are a bad deal. Banks rarely loan more than about 40% LTV and she'd have to move in and then we'd have to hire a 24/7 private aide for her, not to mention roughly 40K in loan fees. Again, makes no sense. Given she needs the cash, a sale is the only route. The CPA I spoke with estimates roughly 450K would be left over after taxes and commissions/fees. 2/3 pie is better than no pie. I gotta be philosophical about the matter and figure the money goes to a worthy cause---buying more guns and bombs to fight North Korea after they bomb us.
Don't be so sure of this. When you say your mother cannot get over a $2,000 loan they are wrong.

You are not looking as a loan based on income as you and so many are thinking. Find a good mortgage broker, and they can arrange a 5 year loan, with the payments prepaid as I suggested. The value of the property, would be so excessive of requirements, and 5 years payments prepaid at closing that they would use that to get the loan. Be one of the best loans they could make.

Forget about buying a personal residence with a 30 year mortgage. That does not apply to what I am suggesting. I many times over the years, arranged mortgages that were no where near being qualified for under normal loan situations.

Example years ago, when I was in the business. A widowed woman came to me, with problems. She owned a free and clear home worth at the time $40,000 which today would be worth multiple times that. She was broke, and did not even have money to eat. She could move half a day drive across the state and live with her parents, and had a job to support herself waiting for her. The home needed $2,000 worth of work to prepare for sale.

I made a call to a banker I knew, explained she needed a $10,000 loan, due in full within 1 year.
With that equity, he told her to come on in. It was appraised by the bank's appraiser, and 3 days later she had $8,000 after depositing $2,000 in my escrow account to pay the clean up. I sent my part time crew and a week later, the home was ready for sale and some of the $2,000 deposit to my escrow account still there to pay utilities we kept on. A week later, it was sold by another office, and we split the commission. The bank got their money back within 6 weeks of making the loan along with their fees and interest. I got a job to keep my part time crew working and they were happy. I got the listing commission for about 3 hours work on my part. The lady sold her home for it's full value less selling costs and the repairs.

This woman had no income, no money in the bank, but owned a free and clear home. She did not qualify for a loan, but her security did and she got the loan very easily, by me making one phone call. Get a good mortgage broker working for you who understands doing such a thing, and they can make it happen.

I am telling you about this, to show it can be done, and a good mortgage broker can arrange it.

If you don't have the power now to handle such a thing, get a good attorney, and as you are her executor, get you made her legal representative to sign for such a mortgage and other necessities which will be easy to do.
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Old 02-08-2018, 10:55 PM
 
Location: Wisconsin
21,543 posts, read 44,077,984 times
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Quote:
Originally Posted by GeoffD View Post
Nope. It was changed about a decade ago. The exclusion only counts from the cost basis from the day you declare it your primary residence. If I have a vacation home I bought years ago for $100K that's worth $500K now, I can move to it now. If I sell it for $600K in a few years, I can exclude that last $100K. The first $400K between the $100k and the $500K is capital gains.

I'm impacted by that law change. I bought my vacation home in 1993. I was always planning to game my residence when I retired to live there for a few years and then sell it tax-free. Even worse, it's in Vermont where the state taxes gains on non-primary residence as regular income. I'm going to get slaughtered when I sell.
Here are two IRS pages which say differently:

Quote:
Determine whether you meet the ownership requirement.
If you owned the home for at least 24 months (2 years) during the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement.

https://www.irs.gov/publications/p52...blink100010383

https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-residence-real-estate-tax-tips

..
Both updated in Sept/Oct 2017. No caveats that I can see that they are prorating on basis of how long owned. Not that this has anything to do w/OP's q, but I had not heard this changed.

Edited to add: I found this:
Quote:
The term Period of Non-Qualified Use referenced in the amendment is very important and means any period during which the property is not used as the principal residence of the taxpayer, the taxpayer’s spouse, or a former spouse.

Importantly, the period before January 1, 2009, is excluded.

http://www.1031.us/library/articles/converting/
It would appear any nonresidential use prior to enactment of this change in 2009 is exempt. In other words, grandfathered. But, going forward, not. In other words, I bought my two-family residence in 1976 and still treat it as a rental property, although depreciation has long run. My plan had been if I ever sell to convert entire property to primary residence at least two years prior. It would appear, for me, the proration would begin in 2009. I'm not thinking too hard about this tbecause, unless unforeseen happens, I don't plan to sell.

Last edited by Ariadne22; 02-08-2018 at 11:16 PM..
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