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Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Hi, I am a single woman working full time and living with my

Resolved Question:

Hi, I am a single woman working full time and living with my mother and aunt. My mother is the owner of the house, and she is recommending that we transfer the ownership to me. How will this look in terms of my taxes due and what will happen when I move out?
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.
HelloCustomer

Is there a particular reason that your mother thinks the ownership should be transferred to you at this time?

If you do plan to move out at some point, would the house remain in your name? Would your mother and aunt continue to live there?

Is there currently a mortgage on the home? What is the approximate value of the home?

Customer: replied 5 years ago.

My mother thinks that having the house under my name will look better on my credit record, since I've never owned property before. I've been living with her for over four years, and I was hoping to move out in the next year. The idea was that if I did move out, the house would remain in my name and they would continue living there. What would happen if I bought another residence?

 

Yes, there is currently a mortgage for $150,000. I believe the balance is down to $100,000.

Expert:  Merlo replied 5 years ago.
Hello againCustomer

I am not sure that transferring the home to your name will really make much difference on your credit report. Your credit report for the most part is a record of how you have handled your finances, and whether or not you have made your payments on time, or if you have defaulted on any loans or credit payments.

If you plan to purchase your own home at some point in the future, it may actually be better for you not to have this home in your name. There are many states and counties and even federal programs which offer first time home owners some great credits, and by having the home transferred to your name, you may disqualify yourself for any such programs.

There is one other thing you may want to consider here. If at some point in time when your mother passes away, this home would be left to you as her beneficiary, then you would automatically at that time receive a "stepped up" basis in the home. What that means is that if you eventually inherit this home, your new basis in the home will be whatever the fair market value was on the day you inherit the home. If you then go to sell the home, you will only pay tax on your gain, which is calculated by taking the sale price less your basis.

If your mother signs the deed over to you now, then it is basically considered by the IRS to be a gift. Your mother would have to file a gift tax return to report the gift, although no tax would likely be due. Everyone is allowed a lifetime exemption on gifts they give of up to $1 million before gift tax is due, but it would still need to be reported. But more importantly, if she gives you this home as a gift, then your basis in the home remains the same as her basis, so your basis would be whatever she originally paid for the home plus the cost of any capital improvements she may have made over the years.

This could be a huge difference down the road in how much tax you end up paying if you eventually inherit this home and then sell it at some point in the future.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you.
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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