Hi, I purchased a condo in Washington DC while my son was in college in lieu of paying dormatory fees. My son graduated and elected to stay in DC. I would like to transfer ownership of the condo to my son in a tax efficient manner and have him refinance the unit so that I am free and clear. We have owned the condo since 5/03. What do you recommend?
I would assume this is your second home.
What is the value of the house now? How much has it appreciated?
Yes, this is a scond home (I actually have three residences, my primary residence, a beach property and the condo my son is living in).
The original purchase price was ~$135,000 and current market value is ~$250,000 last time I checked. I have an outstanding mortgage of $110,000 and wanted my son to finance $175,000 so that I could share some of the equity with my daughter as a down payment for her home.
If you do not want to pay any tax than you may want to gift the property to your son and have him assume the mortgage.
YOu will be however, required to file a gift tax return and report the gift. No gift tax will be due.
Normally a person can give up to the annual exclusion amount $13,000 in 2009 ($12000 for 2008) to a person, every year (($26,000 in 2009)$ 24000 in 2008 if spouses joins in for the gift) without facing any gift taxes and note that such amounts do not count as part of your $1,000,000 lifetime total.
Further, IRS allows a person to give up to $1,000,000 in gifts, total, in their lifetime, before they start owing the gift tax. (This gift is not per (donee)person but its a per donor limit). So you can make gifts that are worth up to a million bucks during your lifetime without paying the gift tax. . Even if you do not owe a gift tax because you have not reached the $1,000,000 limit, you are still required to file gift tax return if you made a gift that does not qualify as excludable.
Let me know if you have any question.
Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.
RD, I read somewhere that in Washington DC there was some sort of tax free transfer of property between family members. Apparently it was to address individuals loosing thier family homes when a child took over ownership, but could not afford the taxes. Do you know if there is any fact/truth to this? and if so, how that might apply in my scenario.
If I were to use the "gift" approach you suggested, does my son incur any tax liability from the gift?
With this additional information, I think I will be good with your reply.... Thanks, Ernie
No, I have not heard about such tax free transfers. You can gift the property while retaining life time interest. But if he is to refinance and use the property than it is beneficial to give him outright ownership.
Gift received is not income and hence your son will not incur any tax liability from the gift.
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..