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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28279
Experience:  Taxes, Immigration, Labor Relations
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In refinancing a loan, I am getting cash out to buy my sister

Customer Question

In refinancing a loan, I am getting cash out to buy my sister out of a house loan; I am assuming the entire loan. Instead of paying her directly, the loan co. want to pay me and then I pay her... are there tax consequences?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
Hi and welcome to our site!As you are the one who are taking out the loan and you are responsible to pay it back - the loan company clearly want to provide the check to you - so there would not be any future issue whether you receive or not the proceeds.How you want to use the money - that is your personal matter - and the creditor doesn't want to be involved.That is understandable..When you are simply want to pay off your sister's obligations and do not have any considerations - that would be classified as a gift.
Expert:  Lev replied 1 year ago.
In the US - a gift - is not taxable income for the recipient and the donee does not need to report it to the IRS.There is no any amount limit.Please see IRS publication 525 - page 31 -http://www.irs.gov/pub/irs-pdf/p525.pdfGifts and inheritances. In most cases, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you.You - the donor is subject of US gift tax regulations.That would be the donor who files form 709 - gift tax return - not recipients of the gift.The gift tax return is required when the total value of the gift is above $14,000 (for 2015) per person per year.There will not be any gift taxes unless the lifetime limit of $5,430,000 (adjusted every year for inflation) is reached.So far - neither will have tax liability.But because the gift is above $14,000 - you will need to file the gift tax return - but most likely - will NOT owe any gift tax.Please seeGift tax returnhttp://www.irs.gov/pub/irs-pdf/f709.pdfinstructionshttp://www.irs.gov/pub/irs-pdf/i709.pdf
Expert:  Lev replied 1 year ago.
Please be aware that I assumed that is a gift.
If that is not a gift - but for instance a loan - that your sister is expected to pay back - there would be no need for the gift tax return.
Otherwise - there is NO tax liability neither for your sister as a recipient of the gift nor for yourself as a donor.
While the gift above $14k would require you to file the gift tax return - there is no tax liability.
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Customer: replied 1 year ago.
This is not a gift; we are currently both on the deed and mortgage; she will receive a payout and be removed from the mortgage and deed.
Expert:  Lev replied 1 year ago.
If you both on the deed - that generally means you are co-owners.
When she will be removed from the deed - that means - she will transfer her ownership interest to you as a remaining owner.
Because she will receive a payout - that transaction classified as a sale.
So - she is selling her ownership interest for the specified amount.
.
So - far - we woudl need to know
- her selling price and her basis.
- then - we need to determine if there is any gain on that disposition.
- if she used the property was her primary residence - that gain might be excluded,
If that is not her primary residence - the gain woudl be her taxable income.
Let me know if you need any help with reporting.
Customer: replied 1 year ago.
So it makes no difference if the payout goes to me and then I pay her or if the mortgage company pays her directly?
Expert:  Lev replied 1 year ago.
When you will remove her from the mortgage - you personally will become responsible for the remaining balance - so you will take over a part of her responsibility - and that part is also treated as your payment.
You are correct - whether the money are paid directly to her from the mortgage company or paid out of your account - that makes no difference for tax reporting.