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John Legal
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I the question concerns Pennsylvania residents. My in laws

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I the question concerns Pennsylvania residents. My in laws have financial difficulties following loss of employment Aged 60 the job prospects don't look good and they have large debts, mortgage, credit card and Student loans taken out for their children
I propose buying their home from them at FMV but allowing them to continue living in the home rent free for the rest of their lives. The sale proceeds will just about take care of their debts and free of paying rent they will be able to get by on low earnings and eventually social security.
My question is will the IRS impute any income to me or any taxable benefit to my in laws and secondly could there be any imputed gifts tax. The FMV is about $320,000 which might equates to a rental equivalent of $ay$16,000 pa shared equally between husband and wife which I hope stays well below gift tax level.
Thank you
Welcome! Thank you for your question.

I am sorry to hear about your in laws situation. Those are very good tax considerations that you are noting. However, the IRS and PA department of revenue will not impute income provided that you do this strictly as a gift and do not try to set up a loan or payback provision. Also, the sale proceeds would be excluded from capital gain for them so long as they have lived there for 2 of the last 5 years and the gain from the sale is less than $500,000 for the couple.

As for Gift tax, it is also likely not an issue. The rent free living in the home would technically be considered a gift to your in laws. However, as you noted, the annual federal gift tax exclusion is $14,000 per person. Any imputed gift would be based on rent and would be well below $28,000 for both of your in laws. Further, even if you should be to reporting a gift over $28,000, you have a 5.125 million dollar federal gift tax exclusion that would prevent you from having to pay gift tax. Finally, the state of PA does not have a gift tax.

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