My wife and I moved from Louisiana to Texas and bought a new home. My daughter wants to buy our old home, but cannot qualify for a loan for the value of the house. Can we sell her the house for less than the appraised value of the home , and if so, what tax ramification for occur for both parties.
This is the first time I have asked anyone this question. I looked at the IRS forms, but didn't really see a specific answer.
I need some additional information.
Concerning the home in Louisiana, have you and your wife owned the home for at least 2 years, and did you both live in the home for at least 2 of the past 5 years?
What is the current fair market value of the home, and how much are you wanting to sell it to your daughter for?
1. The house was purchased in 1987.
2. My wife was living in it until December 23, 2006. I lived there continually until July of 2001 when I moved to Houston do to the collapse of the oil industry and lived in a rented apartment until December 23, 2006 when we purchased the house in Spring, Texas.
3. The house will probably appraise for around $120,000. I feel that my daughter may qualify for about an $80,000 loan.
4. I only want enough out of the house to pay the balance of the mortgage of the new house which is $73,000. I paid half down on the new house.
5. My other option is to just gift the house to her.
Hello again wlk,
First, since you and your wife have owned this home for at least 2 years and your wife did live in the home for 2 of the past 5 years, then you would be eligible under current IRS regulations to exclude $125,000 from any gain on the sale of your home before any excess gain was taxable. Since you have indicated that the current value is around $120,000, it sounds like you will automatically qualify to exclude all gain from the sale, even if you sell the home at its full current value, meaning that you should owe no tax when you sell this home.
As far as selling the home to your daughter for less the current market value - here again, there will be no taxable situation for either you or your daughter. However, when you have a situation where a property is sold for less than the fair market value, there is always a chance that at some point if you were ever audited the IRS may question this transaction. In order to protect yourself, you should file a Gift Tax return using Form 709 to report the amount that was "gifted" to your daughter. In other words, if the market value is $120,000 and you sell it to here for $80,000, you would file a gift tax return to report $40,000 has a gift. You and your wife are each allowed a lifetime exemption on gifts of $1 million, so no tax would be due, but it would be advisable to report this transaction as a gift just in the event it were ever questioned.
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25+ years tax consulting. Specializing in returns for US citizens living abroad