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Richard, Lawyer
Category: Real Estate Law
Satisfied Customers: 53701
Experience:  32 years of experience as lawyer in Texas. I'm also a Real Estate developer.
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I have a 50K lien against a property my Dad owns. I am in 2nd

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I have a 50K lien against a property my Dad owns. I am in 2nd position behind the bank. The bank's lien is 275K. The property is being sold for 300K. So at the closing I will get a check for approximately 20K. That still leaves me with a lien against him for 30K. Is there any way I can just "forgive" the 30K lien?

Essentially, I'll be giving him 30K on paper if I forgive the lien. What is the best way to forgive the lien? Is there a way to do it without any tax ramifications against my father? Thanks for your help.
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good evening. Yes, you can forgive the loan by simply making him a gift of the note with the remaining balance owed. There will be no tax on him because recipients of a gift are not taxed and since it is a gift and not income, it's not reportable or taxable as income. And, there should also be no gift tax due from the donor. Each donor can give $14,000 per year per person under the annual gift exclusion. In addition to that, for any amounts in excess of the $14,000 in a year, each person has a $5,250,000 lifetime exemption....which means a person can give a cumulative amount of up to $5,250,000 in gifts over and above the $14,000 annual gift exclusion amount without incurring gift tax....the donor must file a gift tax return to let the IRS know how much of the lifetime exemption is being used, but there will be no gift tax until cumulative additional gifts have exceeded the $5,250,000.

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