PolishPete

***Mods, could you possibly please leave this in the central ramblings area for a little bit to get some exposure? Not much coming through the home/garden area.***

I semi-asked this here already, but am getting conflicting answers from all over...so am kindly asking for those to answer who have either direct experience, or know the actual answer (instead of just every opinion on what they may think to be accurate).

My mom would like to sell me and my girlfriend her house. It used to be worth roughly $800K when the market was good. Zillow currently estimates it at like $550K. But, it needs updating. New roof, new flooring, new kitchen/appliances, etc. Everythings basically 20 years old and needs to be replaced. The architecure and size of the house are amazing, just that it needs updating.

So, considering its sort of a fixer upper, could she sell it to us for $320K? (the mortgage is less then that)

I'm having some people tell me she can't sell it for that cheap because the city won't allow it. While other people are telling me she can sell it for whatever she wants because its her house.

My thoughts are, just like a car, you can't sell someone your car for $1 because the stupid govt gets involved and they want their fair cut of the taxes, so...does the same apply for a house (even though there are no sales taxes per se on a house).

juniorbean

iTrader: (5)

Honestly, if you're looking for a true answer and not opinions it's probably time to pony up the dough and hire a real lawyer instead of looking for the info on here. Especially since every state, city, county, etc. may have different guidelines about this.

BraveDemon

^ is right.

I work in a real estate and business transaction firm, and I'd have to do atleast a a couple hours of research in order to answer your question (and thats assuming you live in CA. If you live out of CA I wouldn't be able to help you regardless). Those hours would be spent looking at both state/local laws, tax exceptions, other possible transfer methods (I.e. through a revocable trust to avoid tax basis shifts), and even looking at chain of title.

For detailed advice like that, you should really contact an attorney and/or broker that could handle a complex transaction like that. Good luck.

Bdog

From my knowledge you can buy at any price, but the seller may have to pay the Capitol Gains tax on the FMV. If you mother didn't pay much for this house say $300K and she's selling it to you for $320k and it's FMV is $550. I think the IRS will tax her on $240k for Capitol Gains tax. Same as if you ever go to sell it, you may be taxed heavily buying it so cheap.

I'd check with a local real estate lawyer or the IRS in your area!

PolishPete

Thanks for the tips Bdog.

I spoke with 2 loan officers and 1 realtor yesterday. All of which had the following to say. I can buy the house from my mom at any price = to or over the mortgage that's left on the house and no questions would be asked because we're family. If it was strangers, then they would have to explain why such a deal...something about "arms length" law or something like that. Anyway, they all confirmed she could sell us the house for $300K no problem. If it matters. They bought the house for $250K back in 92'.

Bdog

Pete,

There are so many interpretations of IRS laws it seems like they can always find ways to screw with you if they want. Because it's within the family, you may be subject to a gift tax. This usually is in play if a parent gives you cash in excess of $13,000 (2009) you have to pay a gift tax on the amount of $13k. This would affect your mother, but even though she paid $250k and she's selling it for $320k, she may have to pay a gift tax on the difference of the Fair Market Value of $550k. This is where a real estate lawyer could explain all of it more clearly, but I think at this point everything would affect your mother and not you.

http://www.irs.gov/businesses/small/...164872,00.html
Gift Tax


The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not.

The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

PolishPete

Thanks Bdog. I'll look into that.

That whole gift tax crap is major BS. I thought this was a free country. If I want to give something that is mine to someone else...I'm not allowed to without being taxed?? Brutal. Total garbage. My blood is literally boiling reading that. This country has gotten so bad, laws are not there anymore to tell you what you CAN'T do...rather...there's so many laws that they tell you what you CAN do. Basically, you can do anything, unless the US government tells you you can.

Street Spirit

Bigtime

I noticed you've had a lot of questions and are unsure about a lot of different aspects re: your future purchase, re-zoning the property to allow another dwelling and 'tenant', pricing, transfer info, etc.

You really need to sit down with a local, trusted real estate lawyer and long-time realtor and ask all of your questions, and keep asking for clarification until you're sure....it's a transaction that you want to make sure you're prepared for.

agean

Another issue is estate (inheritance) tax.

I forget the exact #'s, but there's something like 600k that your parents can currently pass you tax free upon their death (morbid i know, but a fact of life).

Say the house is valued at 550k. She sells it to you for 200k. The difference (350k) comes out of the tax free inheritance, it's called a gift of equity. When your parents pass, you will now only be able to receive 250k (600 - 350"gift of equity") tax free, everything above that will be taxed.

Just went through this in purchasing my home from my parents. One piece of advice, get the house valued as low as possible, this will not effect anything except the gift of equity.

My parents also had tax issues of their own on the sale (they sold it to me for much less than fair market value).

Consult a lawyer.

TL_Captain

I've had similar question. Basically you'll want to have the transaction done at a fair market rate. If it's too low, the people from city will knock on your door. Even if you "really" bought the house at a dirt cheap price, most likely you will still be paying the property tax based on the market value after the audit. You can fight this in court, but it's a lengthy process.

agean

You're paying property tax based on the homes value, not the sale price.

It's between him and his family how much they sell the house for, it can be as little as $1 and it's none of the city's business or concern, they'll get the same property tax either way

MR1

You need to talk to local experts; accountant, real estate lawyer, possibly real estate broker. Consultation may be free. A title company customer service department can tell you your options regarding property transfers but will not give you advice as they are not lawyers or accountants. You can pay for the information either upfront or after you make mistakes based on lack of knowledge.

Your local planning department can give you your zoning which will determine what can be constructed on the property and any special requirements.

As mentioned before, these opinions while well intentioned are mostly useless. Property laws, transfers and use are based mostly on local laws.

juniorbean

iTrader: (5)

This is most likely true and accurate from what I know, however, again, the only way to know for sure is to hire local experts... especially an accountant. Last thing you want to do is move forward with this thinking all is well then when you do your taxes next year you get slammed with unexpected taxes b/c of the transaction.

Also, if you are able to buy it for significantly reduced amount compared to value, be ready to have every neighbor hate you for screwing up their comps. Of course if you can buy it for $1 that comp won't be taken seriously, but if houses in the area are worth $700k-$800k and you pay $350k... put up a fence around the yard

agean

In my case at least, this wasn't an issue. The house still needs to get appraised for the mortgage company, and that is the houses value (also the official selling price). The actual money transferred from party to party is fairly irrelevant in this case.

You could pay 350k as your example, but the other 350k-450k would still be on the sale as a gift of equity. The comp price would still be legit.

After my sale, I had to have a follow-up tax appraisal by the city and they knew all these numbers, how much the house was valued at for the sale, what I paid, and that it was a family transfer. The tax man knoweth all.

**This is NJ laws as explained by my attorney / accountant, YMMV.

johnnysquire

Don't forget transfer taxes, which are assessed on sale price, at least in some jurisdictions.

PolishPete

Thanks for all the tips.

juniorbean

iTrader: (5)

From what he's saying there will not be a mortgage... so may be a completely different story here.

Either way, he should be careful and hire an attorney and an accountant who knows all of the local laws and statues.