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Question

My mother-in-law has a second home which she would like to give to me and my husband. She currently has a mortgage for approximately 50% of the fair market value of the home. Is there a way for her to give us the house and for us to assume the mortgage? What are the tax implications for each party?

Submitted: 26 days and 2 hours ago.
Category: Tax
Value: $15
Status: CLOSED
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State/Country relating to question: New York

Posted by Mark D 26 days and 2 hours ago.

Answer

XXXXXXXXX,

The difference between the FMV and the assumed mortgage would be considered a gift. Gifts in excess of $13K are subject to gift tax and the giftor must file Form 709. On Form 709, your mother can elect to use part of her $1 million lifetime gift exclusion, preventing the owing of any gift tax. Your new basis in the home would be your mother's basis plus the amount of the mortgage assumed. Please let me know if you have further questions.

Regards,

XXXX X

26 days and 2 hours ago.

Reply

Maybe this is beyond your expertise, but do you know what is involved in assuming the mortgage? Would we need to apply, etc?

Posted by Mark D 26 days and 2 hours ago.

Answer

XXXXXXXXX,

The mother can set up a seller-note (she would had interest income and investment interest expense) or you can apply for traditional financing through a mortgage broker and pay off the existing mortgage first (less confusing option). Please let me know if you have further questions.

Regards,

XXXX X

26 days and 2 hours ago.

Reply

What is a seller-note?

Posted by Mark D 26 days and 2 hours ago.

Answer

XXXXXXXXX,

This is when the seller finances the purchase.

regards,

XXXX X

26 days and 2 hours ago.

Reply

I'm sorry--can you explain how that would work?

Accepted Answer

XXXXXXXXX,

In general terms, the seller issue a lien of the home for the loan balance and the purchasers will make payments to her. You can run into complications if the first lien (bank mortgage) is not paid off first. That is why I would suggest traditional financing. Please let me know if you have further questions.

Regards,

XXXX X

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Expert: Mark D
Pos. Feedback: 99.6 %
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Answered: 10/27/2009

Tax Preparer

MBA, CTEC Registered, CPA Firm Experience with Business and Individual Tax Returns and Issues

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