How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Megan C Your Own Question

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 15206
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
23669918
Type Your Finance Question Here...
Megan C is online now
A new question is answered every 9 seconds

My father ownes a house appraised for $514k and owes $118k

Resolved Question:

My father ownes a house appraised for $514k and owes $118k on it. He has lived here for 30 years full time. I have been approved for a loan of $340k and my dad is ok with selling me the house at that price ($340k). My question is with using gift of equity, the $250k one time gift and my dads cost basis of $196k (purchase price + upgrades) Can we avoid paying capiol gains etc. We are looking for the best way to do this and paying the least amount of taxes escpecially if my father has to pay the capitol gains. Also if my father was to buy a new home are the capitol gains not an issue. Thanks!
Submitted: 12 months ago.
Category: Finance
Expert:  Megan C replied 12 months ago.

Megan C :

Thanks for your question, and thanks for using JustAnswer.com

Megan C :

How are you today?

Customer:

good

Megan C :

That's great to hear!

Megan C :

Your father's sales price is going to be the appraisal, not the amount that you pay for the house.

Megan C :

So, the sales price includes the gift of equity

Customer:

correct

Megan C :

So there's a gain of $318K

Megan C :

Of which only 68k is taxable

Megan C :

May I ask if your mother also lived in this house?

Megan C :

Is your father married would probably be a better quesiton

Customer:

she did but not for 20+ years

Customer:

not married

Megan C :

Ok, if he was he got another $250,000

Megan C :

The only thing I can think of is to sell the house for $446K - but then your gift of equity will be lower

Megan C :

Will that mess you up with financinig?

Customer:

no it wouldn't I only need enough gift of equity to keep me below the 20% so I dont have to pay morgage insurance

Customer:

I have $30k cast as well

Customer:

cash*

Megan C :

OK that's good

Megan C :

I would just try to sell it for $446,000

Customer:

what about the appraised value doesn't it go off that?

Megan C :

Yes, could you get the appraisal lowered?

Customer:

I wouldn't know because the morgage company would get it appraised on there own I imagine

Megan C :

Ahh, yes. So it probably can't be lowered.

Megan C :

The problem is, there's no way to avoid the capital gains on the $68K. Even if your father reinvested in a new house, the gains would still have to be recognized

Megan C :

There's no way to defer recognition until later on down the line

Customer:

so no matter what my father would have to pay capitol gains tax on the $68k?

Megan C :

Unless you could get the appraisal down, there's no getting out of the capital gains tax.

Customer:

there is no way to do it through a trust or another loop hole?

Megan C :

If he put into a trust, the trust would get his basis and then when the trust sold the asset all the capital gains would be recognized.

Megan C :

He would not even get the $250K benefit

Megan C :

Unfortunately, the tax on $68K must be paid

Customer:

even though he owes $118k still i take it?

Megan C :

Yes, the loan does not play into the capital gain calculation.

Customer:

ok so unless the house goes down in value or the appraised value goes down taxes on the $68k has to be payed correct. Also does it go off there appraisal (morgage company) or can I get it appraised myself? \

Megan C :

Yes, that is correct. As for the appraisal, the appraisal would be the one that the sale is based off of. So, whatever the title company uses as the fair market value - this would probably be the mortgage company's appraisal.

Megan C :

Is there anything else that I can assist you with today?

Megan C :

I'm sorry that I didn't have better news for you

Customer:

so no loop holes like he puts the house in my name and I take a loan out to pay him off?

Megan C :

You couldn't do anything like that. He could gift you the entire house and not pay capital gains, but you could not turn around and pay him back. The IRS would look at that and say it was a disguised sale.

Customer:

ok thanks for your help Megan

Megan C :

You're welcome. I'm sorry I didn't have better news. If there's nothing else I can assist you with, please rate as "excellent" so that I may receive credit for assisting you today

Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 15206
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and other Finance Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Rakhi Vasavada

    Financial and Legal Consultant

    Satisfied Customers:

    2073
    Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
< Last | Next >
  • http://ww2.justanswer.com/uploads/RA/rakhi.v/2012-7-3_14374_RakhiVasavadaL.64x64.jpeg Rakhi Vasavada's Avatar

    Rakhi Vasavada

    Financial and Legal Consultant

    Satisfied Customers:

    2073
    Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
  • http://ww2.justanswer.com/uploads/BU/BusinessTutor/2012-2-2_115741_Kouki2.64x64.jpg Manal Elkhoshkhany's Avatar

    Manal Elkhoshkhany

    Tutor

    Satisfied Customers:

    1890
    More than 5000 online tutoring sessions.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    1755
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JK/jkcpa/2011-1-16_182614_jkcpa.64x64.jpg JKCPA's Avatar

    JKCPA

    CPA

    Satisfied Customers:

    838
    Bachelors degree and CPA with Accounting experience.
  • http://ww2.justanswer.com/uploads/starside8/2010-2-16_55433_DSCN1175.JPG Eric's Avatar

    Eric

    Financial Manager

    Satisfied Customers:

    558
    Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.
  • http://ww2.justanswer.com/uploads/FA/fastfile/2011-12-15_23139_Klein2011small.64x64.jpg R. Klein, EA's Avatar

    R. Klein, EA

    Accountant

    Satisfied Customers:

    397
    Intuit Ask a Tax Expert. QuickBooks Certified Pro Advisor (all editions)
  • http://ww2.justanswer.com/uploads/dkaplun/2009-05-17_173121_headshot_1_2.jpg Dimitry K., Esq.'s Avatar

    Dimitry K., Esq.

    Attorney

    Satisfied Customers:

    324
    NASD Licensed Rep, 1997-2001, Business Attorney