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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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if my parent in laws sell me a house for $1 that is worth $91,000

Resolved Question:

if my parent in laws sell me a house for $1 that is worth $91,000 and I give them $10,000 dollars as a down payment what kind of tax or penalty's are involved
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.

Hello JA Customer,


If they are selling you the house for one dollar, please clarify why there is a downpayment of $10,000 being made?



Customer: replied 7 years ago.
I guess I wordeed it incorectly. Weanted to give them $10,000 as a good faith payment
Expert:  Merlo replied 7 years ago.

Hello again JA Customer,


The good faith payment that you make here is not a taxable issue.


When someone sells you a property for a nominal amount such as one dollar, the IRS simply considers this to be a gift situation. In other words it is not actually viewed as a valid sale. Your in laws are basically gifting you the house and they can do this with no tax consequences, although they must file a gift tax return.



First, if and when gift tax is ever due, it is paid by the donor and not by the recipient of the gift. However, under current regulations, each taxpayer is allowed to give gifts in their lifetime of up to $1 million before any gift tax becomes due.


In addition to the $1 million lifetime exemption, each individual is allowed to give annual gifts of up to $13,000 to any number of individuals, and those gifts do not even apply towards the lifetime exemption, nor do they need to be reported. Gifts which exceed the annual exclusion of $13,000 must be reported by the donor by filing Form 709 with the IRS to report the value of the gift. However, no tax is actually due unless that donor has already reached his $1 million lifetime limit. The amount reported then reduces that donor's remaining lifetime balance that he may give in non-taxable gifts.


So what would need to happen in this case is that your inlaws would file form 709 with the IRS to report that they are giving you a gift worth $91,000. That gift then reduces their remaining lifetime limit on tax free gifts down to $908,000 from the allowed $1 million. No tax is due with that form but it does need to be reported. There are no reporting requirements at all on your end.


If this was helpful please press the Accept button. Positive feedback is also greatly appreciated.


Thank you JA Customer



Customer: replied 7 years ago.

first will I get charged for the second connection?

If we live in this property as renters how does that effect capitol gains if we choose to sell the property in the future. Say thaey paid $30,000 nfor the property in 1945 do I pay taxes on $60,000 in capital gain?


Expert:  Merlo replied 7 years ago.

Hello again,


I am not sure what you are trying to accomplish here. First you said they would give you the house for $1, now you are saying you would rent the house. If you only rent the house and they do not actually give it to you, then if you do not own the house you are not the ones who would pay any taxes when it is sold. Only the legal owner of the house pays taxes on the sale.


If they give you this property as a gift, you retain their same basis, which is $30,000. So the $30,000 now becomes your basis in the home. If you later sell the home for $90,000 and you are listed as the owner of the home at the time of the sale, then you would be liable for capital gains tax on the $60,000 gain. However, as long as you own that house for at least 2 years and also live there for at least 2 years before you sell it, then it would be considered your primary home, which means the first $250,000 you have in any gain would be tax exempt. Only a gain over that amount would be subject to tax.


If this was helpful please press the Accept button. Positive feedback is also appreciated.


Thank you JA Customer



Customer: replied 7 years ago.

I ment to say we are renting as of now from them. Does that change anything? I understand your answer as it is now. will they owe anything tax wise at all with this transaction?


Do I have to pay for the extra $15 for singing back on with you

Expert:  Merlo replied 7 years ago.

First of all, I do not know anything about the deposits made on this site, so I can't answer about the $15 you signed back in for. As far as I know you should not be charged for that. We do not receive any credit at all for helping with these questions until you actually hit the Accept button below this screen.


I still don't understand what you are asking here that I have not already explained. If you are renting from them now then this is not your house. It is still their house. If they sell the house then they are the ones who pay tax on the gain. Since it would be a rental house instead of their primary house, they would pay tax on any gain they had over the $30,000 that they paid for it.


If instead they give you this house as a gift, then it becomes your house. If you stay there for at least 2 years, then when you sell it you can exclude up to $250,000 from the gain being taxable because it will be considered your primary residence. If you sell it in less than 2 years after taking title, you would owe tax on the full gain over $30,000.


If this was helpful please press the Accept button.




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