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Old 11-01-2011, 02:02 AM   #1
cchuck38
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Parent Wants to Pay Off Daughters Mortgage

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House was purchased in Daughter & Parent name. Parent passed away
and now other parent wishes to pay off mortgage and take daughter
off mortgage title. In doing so would daughter have to pay any
tax or would this be like a purchase ageement? Now parent
would own two house in the same state. Daughter can live in
house rent free. If and when house is sold in a couple of years,
would parent have to pay any tax on the sale?
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Old 11-01-2011, 12:37 PM   #2
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“In doing so would daughter have to pay any tax or would this be like a purchase ageement?”---->As long as they they owned the property as joint tenant co- owners, daughter is entitled to a $250,000 exemption.It doesn't matter if they are husband and wife, two men or two women. Nor does it matter if they are joint tenants. They could be tenants in common, each owning a 50 percent interest. Or it could be three sisters owning and living in the home, four single men or any combination, as long as their names are on the title and they each meet the 24-month occupancy test within the 60 months before sale. So, as long as the property is primary residence for daughter, then she is subject to Capital gains home-sale tax break of $250,000. Not sure if it be like a purchase agreement until the transaction meets the requirements to be a purchase agreement.
“ Now parent would own two house in the same state. Daughter can live in house rent free. If and when house is sold in a couple of years, would parent have to pay any tax on the sale?”---->When parent sells her primary residence, she can make up to $250,000 in profit if she is a single owner(if the parent sells a house for a profit (long term capital gain) after living in it as her primary residence for 2 of the past 5 years); parent is allowed to sell a principal residence once every two years and exclude up to $250,000. However, she is subject to LTCG on the sale of the second residence, depending on her tax bracket. In 2008–2012, the tax rate on long term capital gains is 0% for those in the 10% and 15% income tax brackets and 15% as long as parent’s tax bracket is 25% or higher.. The market value of the rent needs to be imputed to the person who lives rent free. While the IRS hasn't been auditing heavily for this, since daughter gets rent free occupancy without having to do anything, the transfer is gratuitous ,a gift. As long the fair market value of free rent for the daughter exceeds $13,000 per year, then parent is required to file Form 709 for the free rent, as a gift. Form 709 is an informational return. Parent does not have to pay gift tax on her giving UNLESS she made a huge gift exceeding $1.13,000 million for one donee ( as I assume that parent has only one done.).
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Old 11-04-2011, 06:38 PM   #3
cchuck38
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Therefore, if I leave house in my name & daughter, no gift tax,
etc. will be due to IRS. I may however, have a problem,
please advise which way would be most beneficial for me:
I have a primary resident in state of IN. Now that spouse
passed away will be selling & moving to KY. Probably will make
a profit off sell of house of about $70,000, but will probably
purchase another for primary residence . I have a house in
KY that one son is living rent free already (no plans on selling).
If I pay off the daughter's house and leave it in both names, and she decide to sell it for bigger one, will I have to pay
taxes on anything (house will not be sold for profit only break even)? Can I just pay off loan and take deceased spouse
name off without the IRS asking who payed off loan and having
to pay gift tax? Would like for both children to live in homes
rent free, but I do not want to pay taxes when I sell.
So is the best way to only keep two homes in my name only,
and not switch daughters home to my name only, but to
take deceased spouse name off and leave daughter only
on the title. Any suggestions would be greatly appreciated.
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Old 11-04-2011, 11:29 PM   #4
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“Therefore, if I leave house in my name & daughter, no gift tax, etc. will be due to IRS. I may however, have a problem,”--->As said previously, UNLESS you make a huge gift exceeding $1,013,000 before or in 2011 for your daughter(as I assume that you have only one done, your daughter, $1,026,000 if you have two recipients), you are NOT subject to the gift tax. As long as the market value of the free rent for your daughter exceeds $13,000 for 2011, you need to file Form 709 with the IRS. This doesn’t mean that you must pay the gift tax to the IRS; REMEMEBER :as long as the donor's( the parent) lifetime gifts to that same recipient(daughter) do not total more than $1,013,000, the donor will not have to pay a tax. But, if total lifetime gifts total more than $1,013,000, the donor will have to pay a gift tax equal to 55 percent of the amount given over $1,013,000. So, in your example, as long as the market value of free rent for your daughter is less than $13,000 per year, you do NOT need to file Form 709 and is tax free.
“please advise which way would be most beneficial for me:”---> As said above.
“I have a primary resident in state of IN. Now that spouse passed away will be selling & moving to KY. Probably will make a profit off sell of house of about $70,000, but will probably purchase another for primary residence . I have a house in KY that one son is living rent free already (no plans on selling). If I pay off the daughter's house and leave it in both names, and she decide to sell it for bigger one, will I have to pay taxes on anything (house will not be sold for profit only break even)?”---->So, for the house in KY, if the free market rental value of the residence for your son exceeds $13,000 per year (for2011/ 2011), then you need to file IRS Form 709. For example, if the fair market value of the free rent is $14,000 in 2010 or 2011, then you MUST file IRS Form 709 with the IRS. However, UNLESS you made a huge gift that exceeds $1million before, you are NOT subject to the gift tax. As you said, the home in IN is your primary residence, then you are NOT subject to LTCG on the gain, $70,000LTCG; as you can see, you can exclude up to $250,000 in profit from the sale of a main home (or $500,000 for a married couple or the couple jointly owned the home) as long as you have owned the home and lived in the home for a minimum of two years. Those two years do not need to be consecutive. In the 5 years prior to the sale of the house, you need to have lived in the house for at least 24 months in that 5-year period. In other words, the home must have been your principal residence.REMEMBER: the $500,000 capital-gains joint tax exemption ends when the spouse dies, and the surviving spouse then has a $250,000 exemption. However that may not be an issue because the home's "basis" is adjusted to market value at the time of the spouse's death; for instance, say, a couple purchased a house 30 years ago for $100,000. That amount is the "basis" on which capital-gains tax is calculated.Now let's say that just as they're about to sell the house, now worth $500,000, one spouse dies. The remaining spouse has a $250,000 capital-gains exemption — not enough to cover the $400,000 profit, $500,000-$100,000. However, upon the spouse's death, the property automatically gets a new "stepped-up basis" to the $500,000 fair market value. So selling then would trigger no capital-gains tax for the surviving spouse.
“ Can I just pay off loan and take deceased spouse name off without the IRS asking who payed off loan and having to pay gift tax?”---->As said above, UNLESS you made a huge gift (> $1.013,000 before or in 2011 alone), you do NOT need to pay the gift tax, OK???
“Would like for both children to live in homes rent free, but I do not want to pay taxes when I sell.” The long-term holding period is more than one year. Long-term capital gains are taxed at discounted long-term capital gains rates. The long-term tax rate will be either 5% or 15%, depending on your marginal tax bracket( your personal marginal tax rate). So, you are NOT subject to LTCG tax on the LTCG generated on the sale of your second home as long as your personal marginal rate is lower than 25%.If your tax bracket is higher than 15%( I mean 25%, 28% so on….) , then you MUST pay LTCG tax on your LTCG on the sale of your second residence.
So is the best way to only keep two homes in my name only, and not switch daughters home to my name only, but to take deceased spouse name off and leave daughter only on the title”---->In my opinion, as long as your personal marginal tax rate is lower than 25%, you may sell your second home because you are NOT subject to LTCG tax on the sale of the home up to 2012. If you also dispose of your primary residence in IN state, you can exclude the LTCG, $500,000; upon your spouse's death, the property in IN state automatically gets a new "stepped-up basis" ,fair market value. So selling then would trigger no capital-gains tax for you, the surviving spouse. As said previously, as long aas you switch your daughter’s home in your name, your daughter( UNLESS the home is her primary residence) MAY be subject to LTCG tax UNLESS her personal marginal tax rate is lower than 25%,OK???
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