Personal Finance & Money Asked by jbooker on August 27, 2021
I’m trying to get some guidance on what steps are necessary and sufficient in order for me and my wife in order to obtain legal ownership of a property which is currently owned by a parent.
We are currently living in the home and have a high level interest in owning the home in order to make major renovations. Renovating the home is the primary motivation for considering all of this. Parents do not necessarily want to spend any time and energy on renovations. We would like some pointers on how we can make this happen technically speaking. The owners of the home, parents of one of us, have also an interest in making this happen as well.
Parents are okay if we somehow pay them 50% of the market value of the home, or less. The parents also are interested in minimizing the tax burden on both parties.
The market value of the home is around $650,000 and located in Los Angeles County, California.
Any insight is appreciated. Thank you in advance for the help.
The deed to the house can be transferred and the value transferred can be accounted against the estate-tax-threshold. Or the deed can be changed to co-owners with right-of-survivorship. Or the property can be listed in a will.
Of course a will can be changed at any time or even legally challenged. A transfer of the deed can be reversed within 3 years or so, according to state law, if the value is needed for something like nursing home care. Co-ownership might be considered to be 50% ownership for each party until transfer.
Answered by S Spring on August 27, 2021
To reinforce @S Springs's answer: "When you sell your home for significantly less than its fair market value, the IRS considers the value of that reduction as a taxable gift to your relative—even if no actual cash changes hands."
Thus, that "value of that reduction" would be subtracted from the (currently) $22.36M Estate Tax exemption. Your parents will have to file IRS Form 709 (and retain it for estate tax calculations).
Bottom line: the can sell it to you for below market value, but it's classified as a gift, so must tell the IRS that it reduces their estate tax exemption, and by how much.
Of course, since this is the Internet and thus we might be dogs, best to speak to a tax accountant.
Answered by RonJohn on August 27, 2021
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