Buying a house from a parent....

NEW -> Contingent Buyer Assistance Program
biscuitninja_IHB

biscuitninja_IHB

New member
Ok, here is the situtation, a buddy of mine is buying a house from his parent, BUT he wants to use his own financing terms and still keep the low tax rate.

The two ways I have come up with this is to either assume the loan or go through a trust. The problem with assuming the loan is that he is not using his own financing terms as he wanted. With the trust, i'm going to ASSUME it is a gift, but how does a house being gifted to you play out with taxes/loans/etc?

any help would be appreciated.

-bix
 
Best to check with your tax advisor. It's possible that a below market sale would fall under the radar, but if it's not market value, the difference would likely be construed as a gift. Also, if the seller is financing the deal, then the interest rate needs to be market rate as well for the same reasons. IIRC, if the seller dies prior to repayment in full, the remainder of the loan could be forgiven and it would be considered part of the inheritance, likely with no tax consequences. But much of this info is 3rd hand, so check with someone who does this for a living. If you need a referral, whisper me a request.
 
He might consider using the gift tax maximum annual allowance to offset the high price of the house (24k/year, from mom and dear ol' dad), and/or, buy it in stages-- that is, in terms of acquiring it as a series of fractional interests. Trick question, what's a half-interest in a million dollar house worth? The answer: considerably less than $500k. Anyway, those are some tricks that might help.
 
Sounds good! I think it is a combination of "parental" lending as well as working with a lending to provide the correct loan for them. From what i understand the parent wants a certain amount of money to move on out to Colorado. She is selling the house to give her son a boost up - but at a reduce price.... He on the other hand is giving her a steady supply of cash (after the sale - with a contract) as well as buying the house from her. Taxes, well, we will see what happens.

-bix
 
Parent child transfers are covered under Proposition 58, if in Orange County use this form http://www.ocgov.com/assessor/forms.asp#props

search for Prop 58 This allows parent to children property transfers of less than $1 million to be taxed on the original parent's basis regardless of sale price of the home. So he can buy it from his parents for $800K and get a corresponding loan for 80% LTV and still pay the same property tax that his parents paid.
 
bix,

I'm late to the party but hopefully not too late. Buyers and sellers in a typical situation do not meet each other. The transaction ends and the relationship is over. Five hundred thousand dollar transactions are significant purchases and moreso when the relationship between the buyer and seller continues. Doing business with parents or any relatives for that matter requires clear, precise, and *written* communications so as to avoid any miscommunication, misunderstandings, and stir conflict. Having done business with family and talked to numerous other people who have done the same, lack of communication about all the possibilities seen and unseen is the number one problem. "I can't believe he did / didn't do that, we're family." I've heard horror stories.

There are many ways to address the unseen possibilities and I hope your friend seriously queries him/herself about doing business with family. I'm not saying this because it is a bad thing, but because people presume and assume when dealing with relatives. I wish I had a list of resources to go to, but I don't. =(
 
You must log in or register to reply here.
Back
Top