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Stephen G.
Stephen G., Sr Financial Expert
Category: Finance
Satisfied Customers: 4047
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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My wife and I are refinancing a mortgage in only our names,

Resolved Question:

My wife and I are refinancing a mortgage in only our names, but title includes my mother. The new lender requires that borrowers and title holders be the same. The representative is suggesting that my mother gift her interest to me for a few days and that I gift the interest back to her. The property is in California. Does this create any assessment, gift tax, income tax, or other issues?
Submitted: 1 year ago.
Category: Finance
Expert:  Stephen G. replied 1 year ago.

Stephen G :

There should be no income tax issues as there is no sale or exchange. The gift tax reporting may be required, but it is doubtful that there would be any gift tax due. If you give me the numbers involved, I can tell you what if anything you need to do.

Stephen G :

How much is the property worth, ie. the fair market value. How much is the existing mortgage and how much is the proposed refinancing amount.

Stephen G :

Does your mother live in the home also?

Stephen G :

How old is your mother?

Customer:

FMV: $2,100,000 (60% Son and Spouse / 40% Mother)

Customer:

I intended to move to the next row, not send the message. Current Mortgage: $200,000 New Mortgage: $300,000 Mother's age: 69 (her primary residence as well)

Stephen G :

OK

Stephen G :

Does your mother's estate exceed $5,250,000.?

Stephen G :

Treating the transfer from your mother to you or you & your wife, will require a gift tax return, as the gift will equate to a gift of $760,000. less the 14,000. annual exclusion. If you then transfer her interest back to her, the you & your wife will be making a gift of $720,000. less the annual exclusion of $28,000.................This really doesn't seem to make a lot of sense, but that is what is technically required. There would be no gift tax due in either case, just gift tax returns on Form 709.

Stephen G :

However, perhaps there are other alternatives.

Stephen G :

Does your mother have other heirs or are you her only heir?

Customer:

Her estate is not on track to exceed the estate tax limit. I have one sister.

Customer:

Did you calculate $760,000 by deducting for 40% of the existing mortgage? Only my wife and I are on the current mortgage.

Customer:

Gifting was not our idea. We are supposed to sign loan docs and were just notified the proposed lender requires that borrowers and titleholders be the same, unlike the existing lender, which permitted just my wife and me to be on the loan, but my mother to be on title as well.

Stephen G :

Yes, I realize that, so that's why I mentioned other alternatives. The botXXXXX XXXXXne is that if the transfers were deemed to be gifts, there would be no gift tax due. When you make a transfer of property like that, it is basically deemed to be a gift.

Stephen G :

Since the intent is NOT to make a gift, I would suggest that you draft a deed which transfers the 40% back to your mother and give her that deed to hold before she signs the deed over to you and your wife. Then after the closing on the mortgage, she can have that deed recorded to transfer her 40% interest back to her.

Stephen G :

That way, technically, except for the actual recording of the deed back to her, she has never actually given up her 40% interest in the property.

Stephen G :

The only thing I'll mention is that some mortgage notes provide that if their is a change in the title, without the lender's approval, the note becomes immediately due and payable. In actual practice, this provision is usually ignored by the lender as long as the mortgage payments are made on time and there is no other default of the mortgage provisions.

Stephen G., Sr Financial Expert
Category: Finance
Satisfied Customers: 4047
Experience: Extensive Experience with Tax, Financial & Estate Issues
Stephen G. and 3 other Finance Specialists are ready to help you

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