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Richard, Attorney
Category: Estate Law
Satisfied Customers: 55443
Experience:  29 years of experience practicing law, including tax and estate planning.
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My parents are very ill and want to get rid of their house.

Customer Question

My parents are very ill and want to get rid of their house. They owe 80,000 on the house. It is a mixed use property (residential and commercial). My husband is interested in purchasing the house but he does not have 20% for the down payment. The house is currently valued at $240,000. My husband has been approved for a mortgage/construction loan and his loan officer said that my parents can sign over the deed to him. Once that is done, my husband can refinance the house with the mortgage that he has been approved for. He then would pay $80, 000 to pay off my parents mortgage, give another $60,000 to my parents for the sale and my husband would take the rest and repair the apartments for rent. Can this be done? Are there any tax liabilities for my parents and/or husband? Also, the original loan amount on my parents home is $160,000. They got approved for a loan modification in 2014 and received an $80, 000 cancellation of debt which is why they owe only $80,000. My mom has yet to pay the taxes on the $80,000 cancellation of debt. Please help. I am in the middle and I want to make sure that my parents would not be penalized for paying off the mortgage in this manner.
Submitted: 1 year ago.
Category: Estate Law
Expert:  Richard replied 1 year ago.

Good morning Myrna. My name is ***** ***** I look forward to helping you.

Can you provide me a bit more information? Is there a reason why your husband can't simply close the purchase of the property and the loan simultaneously? What did your parents pay for the home? If they made any improvements, what was the cost? Do they live in the home? Thanks!

Customer: replied 1 year ago.
My husband does not have 20% for the down payment. They have owned the home for over 40 years so yes improvements have been made over time. I am not sure of the cost.They recently moved in with me about a month ago because they are ill. Initial price was 35,000 over 40 years ago but with refinance over the years they now owe 80,000 with an 80,000 cancellation of debt.
Expert:  Richard replied 1 year ago.

Thanks for following up. Since this is your parents principal residence for at least 2 years of the preceding 5 years, then they would have no tax consequences from the sale of their property. That's because under Section 121 of the Internal Revenue Code, they can exclude up to $500,000 of gain from the sale of a principal residence. Since the property is only worth $240,000, any gain would be well within this exclusion. As a buyer, your husband would not have any tax consequences from the transaction.

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