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If I purchase a home for cash for 110,000 and then sell it…

If I purchase a...

If I purchase a home for cash for 110,000 and then sell it to my son and his wife for 80 (they take out a mortgage) will i have to pay capital gains?

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If I purchase a home for cash for 110,000 and then sell it to my son and his wife for 80 (they take out a mortgage) will i have to pay capital gains

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3/14/2018
Richard
Richard, Tax Attorney
Category: Tax
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No, you will owe not taxes on the sale because you have no gain. The sale price is less than your basis of $110,000 so there is no gain and no tax to you. If it's value is in excess of $80,000, then you would be considered to have made a gift of the excess, but that won't involve any gift or income tax to either of you.

First, pursuant to Section 102 of the Internal Revenue Code, gifts are not income and thus do not need to be reported on the income tax return. There should be no gift tax consequences. Recipients of gifts are not subject to gift tax. And, there should also be no gift tax due from the donor. Each donor can give $14,000 ($15,000 in 2018) per year per person under the annual gift exclusion. In addition to that, for any amounts in excess of the $14,000/$15,000 in a year, each person has a $5,490,000 lifetime exemption ($11,200,000 in 2018)....which means a person can give a cumulative amount of up to $5,490,000 ($11,200,000 in 2018) in gifts over and above the $14,000/$15,000 annual gift exclusion amount without incurring gift tax....the donor must file a gift tax return to let the IRS know how much of the lifetime exemption is being used, but there will be no gift tax until cumulative additional gifts have exceeded the $5,490,000 ($11,200,000 in 2018).

Thank you so much for allowing me to help you with your question. I have done my best to provide information which fully addresses your question. If you have any follow up questions, please ask! If I have fully answered your question(s) to your satisfaction, I would appreciate you rating my service as Good or Excellent (i.e., 4 or 5 stars)(hopefully Excellent/5 stars!). Otherwise, I receive no credit for assisting you today. I thank you in advance for taking the time to provide me a positive rating!

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Customer reply replied 1 month ago
even if we upgrade the home and say its value goes up significantly say from 110,000 to 160,000 -- still no tax penalties for me or them?

That is correct. The value in excess of the sale price is simply a gift with no income or gift tax consequences. :)

Richard
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 56,562
Experience: 29 years of experience as a tax, real estate, and business attorney.
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Thank you so much for the 5-star rating! I know rating takes an additional step and I truly appreciate you taking the extra time!

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Customer reply replied 1 month ago
Richard, this is interesting information. Just to be sure I understand, I was under the impression that if you exceeded the 15,000 gift in one year, you paid taxes on the overage? So if i were to gift 25,000 in 2018 I am still not taxed on overage of 10K?
that is correct.
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Once over 15,000, you have the 11,200,000 lifetime exemption before any tax
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Customer reply replied 1 month ago
Hi Richard, hope you aren't tired of me yet. I need clarification on one more question. If I purchase this house for cash I am wanting to put my sons name on the title and not mine. Is that actually considered a gift? If it is a gift what type of forms have to be completed come tax time? I am weighing my options here and want to know what to expect. You have been great!

No worries. Yes, if you pay for the house and put your son's name on the title, it will be a gift. And, if the amount paid is over $15,000 (the annual exclusion amount), you'll need to file a gift tax return (Form 709) for the excess to let the IRS know how much of your life time exemption you are using. :)

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Customer reply replied 1 month ago
Richard,
I have one last thing that I am worried may be an issue. Perhaps you can advise. My son has 30K and I have decided instead of blowing that on down payment I would put up the additional 80K. My hope is that he can then own it and take out an equity loan if its in his name or a mortgage if its in mine-- to repay me the 80K. Is that illegal? I have no idea, I do know I want him to have the mortgage experience and write offs at tax time. So this is why I am trying to do it this way. But I was just thinking about when I return the 80K into my accounts that kind of kills the whole "gift" thing. I am so confused now

That won't be a problem. You can either structure this as a loan from you originally. Or, he can gift you back the money later when he gets a loan on the house.

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