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My mother in law owns a small home in a retirement community…

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My mother in law owns...
My mother in law owns a small home in a retirement community in California. She plans to leave us the house, but we're interested in taking out equity now to buy a house ourselves. The mother in law is fine with us doing so. From a tax perspective is it better to take ownership of the house or to have her take out the equity and give it to us?
Submitted: 3 months ago.Category: Tax
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Answered in 7 minutes by:
3/19/2018
Tax Professional: socrateaser, Lawyer replied 3 months ago
socrateaser
socrateaser, Lawyer
Category: Tax
Satisfied Customers: 39,978
Experience: Retired
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Hello,

I am a member of the State Bar of California, the U.S. Tax Court and I am a licensed real estate broker.

If the property is passed to you after your mother-in-law's passing, then you will receive the property with a "step-up in basis," to fair market value. This means that were you to sell the property after your mother-in-law's passing you would have little no capital gain liability, because your basis/acquisition cost would be the same as the property's sale price.

Conversely, if you take the property now, then you will have to pay the capital gain that your mother would have had to pay, which could be quite a lot, if the property has appreciated since your mother's purchase.

So, the general answer here is have your mother "loan" you the money, and you make payments until her death, at which time, you would be able to sell the property for fair market value, and have no tax liability.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer (click 3, 4 or 5 stars) -- otherwise, Justanswer retains your entire payment, and I receive nothing for my efforts in your behalf. Note: If you cannot find the rating button on your webpage, please just type in your rating in a response to this note, and customer service will apply the rating for you.

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