Hello again JA Customer,
The good faith payment that you make here is not a taxable issue.
When someone sells you a property for a nominal amount such as one dollar, the IRS simply considers this to be a gift situation. In other words it is not actually viewed as a valid sale. Your in laws are basically gifting you the house and they can do this with no tax consequences, although they must file a gift tax return.
First, if and when gift tax is ever due, it is paid by the donor and not by the recipient of the gift. However, under current regulations, each taxpayer is allowed to give gifts in their lifetime of up to $1 million before any gift tax becomes due.
In addition to the $1 million lifetime exemption, each individual is allowed to give annual gifts of up to $13,000 to any number of individuals, and those gifts do not even apply towards the lifetime exemption, nor do they need to be reported. Gifts which exceed the annual exclusion of $13,000 must be reported by the donor by filing Form 709 with the IRS to report the value of the gift. However, no tax is actually due unless that donor has already reached his $1 million lifetime limit. The amount reported then reduces that donor's remaining lifetime balance that he may give in non-taxable gifts.
So what would need to happen in this case is that your inlaws would file form 709 with the IRS to report that they are giving you a gift worth $91,000. That gift then reduces their remaining lifetime limit on tax free gifts down to $908,000 from the allowed $1 million. No tax is due with that form but it does need to be reported. There are no reporting requirements at all on your end.
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Thank you JA Customer