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My dad is going to sell me his house that is worth $300,000 and "gift" me 20% of it ($60,000). Would he have to pay taxes? If so, how much? I live in Pa.
Thanks!
Thanks!
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You are allowed up to 12,000 per year unreported gift tax. Anything over the 12,000 is deducted from your 1 million lifetime exemption. So yes, your dad can sell you the house for less, but it deducts from your 1 million exemption. You do not have to pay tax on any equity untill you go past the 1 million. -
Would he have to pay any taxes on the gift equity? Thanks!Comment
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You need to see an estate tax attorney before going through with this. I think it can be structured to avoid the gift tax but it needs to be set up properly beforehand. For instance, maybe your dad could loan you the money and then forgive a portion of it each year. But there needs to be paperwork set up and documents showing the details of the transaction to keep the IRS happy.Comment
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Thanks!Comment
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I think you really need to go to an attorney that deals in estate planning. You don't want to get yourself into a mess or one for your father either. There are so many little things that could go wrong. Sometimes the money for expertise is worth paying for. I have heard that parents can sell their houses to their kids though and it helps their kids get into a house with no down payment.Comment
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I also think that you need to consult an attorney because you have siblings and you need to fairly treat the property during this "sale".Comment
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You are allowed up to 12,000 per year unreported gift tax. Anything over the 12,000 is deducted from your 1 million lifetime exemption. So yes, your dad can sell you the house for less, but it deducts from your 1 million exemption. You do not have to pay tax on any equity untill you go past the 1 million.Comment
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Also, I believe you are soon to be married, so remember that your father can give each of you $12000 a year without any strings attached ($24000 total). So the whole $60K+interest debt could be forgiven over a period of ~3 years. I would suggest trying to stay under the yearly limit rather than using part of the 1 million lifetime exemption. Definitely see an estate tax attorney to make sure you do this right.Comment
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I found this on the IRS website. It seems to say that you can apply the extra gift to a unified credit to gift tax on form 709.
Applying the Unified Credit to Gift Tax
After you determine which of your gifts are taxable, you figure the amount of gift tax on the total taxable gifts and apply your unified credit for the year.
Example. In 2007, you give your niece, Mary, a cash gift of $8,000. It is your only gift to her this year. You pay the $15,000 college tuition of your friend, David. You give your 25-year-old daughter, Lisa, $25,000. You also give your 27-year-old son, Ken, $25,000. Before 2007, you had never given a taxable gift. You apply the exceptions to the gift tax and the unified credit as follows:
Apply the educational exclusion. Payment of tuition expenses is not subject to the gift tax. Therefore, the gift to David is not a taxable gift.
Apply the annual exclusion. The first $12,000 you give someone during 2007 is not a taxable gift. Therefore, your $8,000 gift to Mary, the first $12,000 of your gift to Lisa, and the first $12,000 of your gift to Ken are not taxable gifts.
Apply the unified credit. The gift tax on $26,000 ($13,000 remaining from your gift to Lisa plus $13,000 remaining from your gift to Ken) is $5,120. See the Instructions for Form 709 for the Table for Computing Gift Tax for further information. You subtract the $5,120 from your unified credit of $345,800 for 2007. The unified credit that you can use against the gift tax in a later year is $340,680.
You do not have to pay any gift tax for 2007. However, you do have to file Form 709.Comment
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