Hello again pakainz,
There are two issues here.
1. He would not owe any tax on the sale of his condo to you. The IRS
currently allows single taxpayers to exclude $250,000 from the gain on the sale of their primary residence before any tax is due. Since he has owned this condo and lived there for at least 2 years, this qualifies as his primary residence. Therefore his exclusion amount of $250,000 would more than zero out any gain he had, and so he would owe not taxes on the sale.
2. Since he would be selling you the property
at way less than the fair market value, then the IRS would view this as though he may a partial sale and a partial gift. What that means is that he would have to file a gift tax return
. There would not be any tax due, but he would need to report the gift. The gift he would be giving you is the difference between the fair market value and the amount he is actually allowing you to buy it for. If the fair market value is $132,000 and he sells it to you for the loan balance of $62,000, then he has given you a gift of $70,000.
The IRS allows each taxpayer to give gifts in their lifetime of up to $1 million before any tax is due. However, any gift which exceeds $13,000 in any one year must still be reported by filing Form
706. No tax is due until the $1 million lifetime exemption has been used up, but he would have to file that form.
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Thank you pakainz.