Question regarding transferring home to son

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GrizzlyGoldAce
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Joined: Fri Jan 15, 2021 8:42 pm

Question regarding transferring home to son

Post by GrizzlyGoldAce »

What would be the best way to transfer home to son legally but with paying the least amount in the process?
If heard of filing a gift tax form for it.


Or is there any restriction on how much the father can sell the house for?
(Ex: the house is valued at 550k, but would sell it for 300k to his child). is this doable? (wise?)

State is California.
Gill
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Location: Florida

Re: Question regarding transferring home to son

Post by Gill »

You can do whatever you like but your example would be a gift of $250,000 requiring a gift tax return but no tax obligation.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
ZMonet
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Re: Question regarding transferring home to son

Post by ZMonet »

I got this from a similar thread so you'll want to look into the details, but I believe what your describing is sub-optimal. I believe if your son inherits the house when you pass then he gets the stepped-up basis for the house (unless the law changes). Someone correct me if I'm wrong.
miket29
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Re: Question regarding transferring home to son

Post by miket29 »

It isn't clear from the question whether the OP plans on simply gifting the house to the son or selling it below market price.

I am not an attorney. However I found this link discussing the difference between giving the house while alive or passing it after death. https://www.lynklaw.com/dos-donts-trans ... -children/

If the OP is planning on a below-market-rate sale then hiring an attorney to understand the ramifications might be a good idea
Topic Author
GrizzlyGoldAce
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Re: Question regarding transferring home to son

Post by GrizzlyGoldAce »

to be specific: my father has a home hes wanting to transfer to me.
so im looking at the options on what is the least expensive legal way of transferring the house to me?

small detail i forgot to include:
He has a HELOC pulled from it (still owes about 300,000), the home has a guest house being rented out for 1100$, so im basically paying half of mortgage or so if i take over.
My plans if i acquire it would be to hold it for investment purposes.
If i have to legally buy it: i would use fha loan and live in front of house for the required year, then move out and rent that part (currently both guest house (1100$) & front house (1500$) are rented but i would live in front house for the required year.

Hes wants to gift it to me if i was willing to take over the payments.
so hopefully it makes sense now.

Can he gift it to me while he owes money on it? and i can just take over payments?
or does that mean i have to legally buy it now to take over?

So which route would be best for both parties?

He bought originally 11 years ago for 200,000$, current value is 550k.
SuzBanyan
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Re: Question regarding transferring home to son

Post by SuzBanyan »

A gift of the entire house, portion of the house with a below market sale of the balance or a sale of house at fair market value are all legal options.

For a gift, your father would file a Gift Tax Return (Form 706) stating the amount of the gift. If he later passes away with a substantial estate, his estate may need to pay Federal estate taxes after his death. As the recipient, you take over all the tax attributes of the house, so that if you sell it the next day, you would pay the same taxes as your father would have had he sold it.

For a sale, you Dad would pay tax on the gain from the sale based on the difference between the net sale price and the current basis (original purchase price plus capital improvements minus depreciation), as well as tax on the recapture of the depreciation. You would then depreciate the house based on the new purchase price.

For a below market sale, the treatment is a blend. If he gifts you half the value, then he pays tax on the sale based on half the purchase price minus half the basis and files a gift tax return to report the other half value. You then continue to depreciate half the house based on your Dad’s attributes and the other half based on the value paid.

Because the house is currently a rental, under any of these scenarios the property tax would be reset to an amount based on current fair market value. Because it wasn’t your Dad’s residence, this reassessment is not changed based on your making the house your residence.

In all likelihood, the lender will need to be paid in full and you will need to obtain new financing.
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Sandi_k
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Re: Question regarding transferring home to son

Post by Sandi_k »

I think the easiest and cheapest (and best from a tax perspective) way would be for him to file a Transfer on Death Deed with the county recorder's office.

He still owns it, but it passes to you without probate when he passes. You then get the (new) stepped-up value, so if you choose to sell it after he passes, your tax burden is negligible.
HomeStretch
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Re: Question regarding transferring home to son

Post by HomeStretch »

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Last edited by HomeStretch on Wed Apr 21, 2021 8:34 pm, edited 1 time in total.
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celia
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Re: Question regarding transferring home to son

Post by celia »

I believe if he gets rid of the house now, the HELOC lender needs to be paid in full now.
pshonore
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Re: Question regarding transferring home to son

Post by pshonore »

Note that some states (like CT) charge a conveyance tax when property is transferred. I don't know if family to family transfers are exempt. Deed recording charges are usually charged as well.
Gill
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Re: Question regarding transferring home to son

Post by Gill »

SuzBanyan wrote: Wed Apr 21, 2021 2:44 pm
For a gift, your father would file a Gift Tax Return (Form 706) ...
Form 709.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
oldfatguy
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Re: Question regarding transferring home to son

Post by oldfatguy »

celia wrote: Wed Apr 21, 2021 6:41 pm I believe if he gets rid of the house now, the HELOC lender needs to be paid in full now.
That was my thought as well.
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