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Not sure if this is a real estate question. I am looking for…

Not sure if this is...
Not sure if this is a real estate question. I am looking for a condo, moving out of my house leaving it to my son and his family. I have some stock and roth IRA. I will be 69 next month lving in Massachusette. I would like to give a strong down payment and would like to avoid taxes as much as possible. Any suggestions?
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Answered in 25 minutes by:
3/8/2018
Attorney Wendy
Category: Legal
Satisfied Customers: 476
Experience: Member at Keefer & Keefer LLC
Verified

Hello. My name is ***** ***** I have been an attorney for about 20 years. This is a great question and it is wonderful that you are considering the best financial decision for obtaining funds for your down payment. There are several things to consider in terms of overall tax consequences: (1) if you are gifting your existing house there may actually be gift taxes triggered; (2) if you choose or are considering the sale of stock holdings to fund the down payment you will need to know whether you made or lost money on those investments and, if there was a gain, calculate the estimated tax on that gain; and (3) whether a withdrawal of Roth IRA funds will be taxable will depend, in your situation, on how long you have had those funds. I provide some insight to each of these issues below.

Whenever you provide a gift - cash or assets - in a given year that is valued at $14,000 or more for an individual, you are required to file a gift tax return with the IRS. This does not mean you will have to pay any gift tax as in addition to the annual $14,000 per person and per recipient, there is also a lifetime gift exclusion of $5.49 million for you. In other words, if the house has a value and equity of $100,000, you can first give $13,999 of it to each of your son's family members to see if you can avoid having to file, but that causes other issues with cluttering the title of the house. So, more likely if the house had a value of $100,000, that would trigger the need to file a gift tax return, but no gift taxes would be due unless you had already gifted in your lifetime so much that the difference between $100k and $14k totaled $5.49million or more. So, this is a pretty long way to say that, without knowing your gift history but in the typical situation, gifting the house to your son will require you to file a gift tax return but not likely incur any required tax payment. It is more a way for the IRS to track your lifetime gifting.

On the stock use for funding the down payment, if you are looking to liquidate stocks where you have gained value, you just need to be aware that the increase in value over the price at which you purchased the shares will be taxed as a capital gain and depending on how long you have held/owned a given stock will determine whether that gain will be taxed at the short term or long term rate. Depending on your income and whether the gains are on short term or long term investments those tax rates on the gains range from 10-39.6%.

Your Roth IRA allowed you to invest in a retirement plan but using taxed dollars. For that reason, withdrawal rules for Roth IRAs are less stringent than some other investment tools. At 62, you should be able to withdraw funds that have been held in the Roth IRA for more than 5 years at no cost (no tax and no penalty). If the funds have been held less than five years you will pay income tax on them but still no penalty. The key question to evaluate in this situation is whether the tax benefit to using these funds to fund your down payment is outweighed by wanting to maintain funds for future daily expenses in retirement. So, be sure to evaluate both options for the down payment looking long term, as well as short term at the financial impact.

I hope this helps. If you need further assistance, please reply to this email. If I answered your question and provided excellent service, I would greatly appreciate your 5 star rating at this time.

Please note: This is for informational and educational purposes only and is not legal advice. No course of action is being proposed and no attorney-client relationship or privilege has been formed as a result of this conversation.

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And I do apologize for this subsequent message, but it also important to note that your capital gains may also be included in your income for state tax purposes in Massachusetts, which may have different tax rates than what you will pay to the federal government.

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Customer reply replied 1 month ago
I have a revokeable trust along with my will. At the time of my death the house will go to my son, the house will be in my name until then. Is this a problem?

Not a problem at all; that is one method to avoid the gift tax issue.

Attorney Wendy
Category: Legal
Satisfied Customers: 476
Experience: Member at Keefer & Keefer LLC
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