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Old 11-05-2017, 01:04 PM
 
3 posts, read 2,008 times
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We bought a condo in 2005 as a rental property for $80,000. We rented it out thru 2015. In 2016 our son got married and moved to the condo. We don't charge him rent as long as he pays HOA and we paid property taxes. He is planning to stay in this condo for at least 3 years and then to buy a house. Current market price of this condo is $190000. We won't rent a condo anymore and planning to sell it after he moves out in about 3 years. We want to add our son to the title. If he stays there for at least 2 years should we pay capital gain after selling condo? What is your advice? Thanks
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Old 11-05-2017, 01:12 PM
 
Location: Phoenix, AZ
6,325 posts, read 4,818,490 times
Reputation: 17938
Quote:
Originally Posted by tolik2121 View Post
We want to add our son to the title.
Don't. Incredibly bad idea.

See:

Placing Your Children on the Title to Your House: A Good Idea?

It's almost always a bad idea to 'deed' your house to heirs - tribunedigital-chicagotribune

Not to mention that he will be a co-owner and if you ever become estranged (yes, it can happen to you) that's when the **** will hit the fan.

Quote:
Originally Posted by tolik2121 View Post
If he stays there for at least 2 years should we pay capital gain after selling condo?
Ask a tax pro.

Quote:
Originally Posted by tolik2121 View Post
What is your advice?
Don't.

Period.
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Old 11-05-2017, 03:00 PM
 
7,985 posts, read 5,352,022 times
Reputation: 35543
Don't do it.
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Old 11-06-2017, 10:24 AM
 
1,454 posts, read 1,934,598 times
Reputation: 1254
Quote:
Originally Posted by tolik2121 View Post
We bought a condo in 2005 as a rental property for $80,000. We rented it out thru 2015. In 2016 our son got married and moved to the condo. We don't charge him rent as long as he pays HOA and we paid property taxes. He is planning to stay in this condo for at least 3 years and then to buy a house. Current market price of this condo is $190000. We won't rent a condo anymore and planning to sell it after he moves out in about 3 years. We want to add our son to the title. If he stays there for at least 2 years should we pay capital gain after selling condo? What is your advice? Thanks

I'm assuming you're wanting to add him to the title in order to meet the use and ownership tests to avoid capital gains? In the preceding 5 years from the sales date you would have had to live in the property for 2 of 5 years and owned the home for at least 2 years to avoid capital gains.

If you add your son to the title he will then be entitled to a division of the sales proceeds.. Just pull up a calculator and pay the capital gains tax (typically 15-25% of the gain depending on your income brackets) - the amount will vary depending on your annual income and what the house sells for. Paying the tax is a much safer bet, unless you really, really, (REALLY) trust your son and his wife.
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Old 11-06-2017, 06:34 PM
 
3 posts, read 2,008 times
Reputation: 18
Yes, I want to add my son to the title to avoid paying capital gains. Like I mentioned before, he will stay in this condo for at least 3 more years, then we'll sell condo. In my understanding I wouldn't pay and capital gains at all. I am wrong?
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Old 11-06-2017, 08:42 PM
 
Location: Portland, Oregon
10,988 posts, read 20,496,051 times
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I am no expert in the internal revenue code and the deal you are proposing.

Does this condo have a mortgage? Changing the title may have consequences with your lender.

If not why not sell the condo to your son and hold a seller's mortgage? You may need an appraisal as this is not an arm's length sale so consult your accountant. You doubtless have been depreciating the property when you rented it so there may be some capital gain on your side.
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Old 11-06-2017, 09:14 PM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
34,644 posts, read 57,702,312 times
Reputation: 46095
Quote:
Originally Posted by tolik2121 View Post
Yes, I want to add my son to the title to avoid paying capital gains. Like I mentioned before, he will stay in this condo for at least 3 more years, then we'll sell condo. In my understanding I wouldn't pay and capital gains at all. I am wrong?
You are wrong. (unless you meet the criteria here)
https://www.irs.gov/taxtopics/tc700/tc701

There are several avenues you can take, but adding his name to the Deed may complicate your exclusion. And certainly your liability and ownership status.

Do also consider the potential tax changes slated for converting income property to personal property. (Including, but certainly not limited to the CG exclusion) IIRC they are extending the length of holding time from 5... to 7 or 10 yrs (time you MUST live in it). NOTE it is NOT the same as a personal residence which you HAVE NOT RENTED (24 month or / 3 of last 5 holding period)

Be SURE to recapture your depreciation as SOON as you stop renting it. Of course... you HAVE been taking depreciation, as you have no CHOICE!!! IRS will force you to recapture, even if you have not declared / received the benefit of depreciation. (I feel this is rotten eggs, but it is the RULES, and the IRS knows the rules!) (and you should (MUST) know them also!).

Get a tax buddy. I LOVE my enrolled agent.!
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Old 11-06-2017, 10:59 PM
 
3 posts, read 2,008 times
Reputation: 18
This condo doesn't have a mortgage. I want to help my son with his future down payment, this is why I want to add him to the title: I think I wouldn't pay capital gains, only recapture depreciation tax. My parents helped me with down payment, so I want to help him. I want to avoid paying capital gains LEGALLY, will probably see tax lawyer advise
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Old 11-06-2017, 11:35 PM
 
Location: Left coast
2,320 posts, read 1,857,640 times
Reputation: 3261
If he has been living there he can get the deferment for capital gains if he is added to the title- I know of this exact situation (the principal/ parent quit claimed the property over to a child) the parent did not incur any capital gains at all.
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Old 11-07-2017, 06:34 AM
 
Location: North Idaho
32,545 posts, read 47,653,023 times
Reputation: 77985
Quote:
Originally Posted by tolik2121 View Post
Yes, I want to add my son to the title to avoid paying capital gains. Like I mentioned before, he will stay in this condo for at least 3 more years, then we'll sell condo. In my understanding I wouldn't pay and capital gains at all. I am wrong?
You need to talk to a good accountant who specializes in real estate tax law.

You are wrong about the capital gains. The condo has been used as a rental, so capital gains will still be due from the rental period. Home owners exception will be prorated and you and your son won't get the whole thing. Because you aren't living there, I suppose it is possible that your son won't owe capital gains, but you will on the portion you own.

You also need to find out about gift tax when you transfer ownership for free and possibly capital gains due at that time since you are changing ownership.

Seriously, get some highly qualified professional help before you do anything with the title of this property.

Disclosure: in no way am I qualified to give tax advice, so pay a qualified person to walk through the tax ramifications with you.
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