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Ask Law Educator, Esq. Your Own Question
Law Educator, Esq.
Law Educator, Esq., Lawyer
Category: Real Estate Law
Satisfied Customers: 118133
Experience:  Licensed attorney practicing landlord-tenant, land use and other real estate law and litigation.
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I'm planning a non-arm length purchase of my uncle's primary

Customer Question

I'm planning a non-arm length purchase of my uncle's primary residence (sfh). I moved in late last year. I have a written agreement with my Uncle that I could buy the house within 1year for $400k. I had an appraisal done showing $504k. There is $50k worth of work that needs to be done, including new roof, upgrade hvac system, upgrade plumbing, etc.
Questions:
1) Can we show the purchase price as $450k with $50k credit back to me the buyer to equal $400k? That way, gift equity is only $54k?
2) my uncle is low income receiving SSI. Would the capital gains threaten his SSI benefits?
3) would conservative capital gains be computed as 40% of $54k to equal $22k? Or would the calculation be 40% of $104k regardless of the credits back?
4) what are the tax implications for me when receiving $54k gift equity?
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  Law Educator, Esq. replied 1 year ago.

Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.

1) You can show the purchase price as $450K, with $50K in escrow from seller for repairs, so it would not have to be claimed as a gift. So the credit back to you would be for repairs and not have to be considered as a gift at all if you do not want it to be.

2) Yes, if he receives this house payment, it will have to be claimed for his SSI and it would cause his benefits to be reduced or stopped until he spends it down.

3) The Capital Gains would be on the $54K if your uncle leaves $50K in escrow for repairs as his agreement to make repair as part of the sale.

4) If you write the $50K as repairs, you do not have to consider the "equity" as anything, if you buy it reasonably close to actual value. The fact you are paying (on paper) $450K for a $500K house, that is actually close to market value and it is not really "gift equity." However, even if it were "gift equity" you pay no taxes it would go towards your uncles $5M lifetime gift credit.

Customer: replied 1 year ago.
5) my uncle and I formed an agreement last December. I've rented the home since then paying some option $. We had an appraisal done last December that resulted in the $504k value. Today, the house is valued at $550k. What documentation (to our agreement and the appraisal), if any, is customarily required to establish market value as of the date of our agreement vs. the current date?