Posted on: 04th Aug, 2007 05:18 am
my mother-in-law plans to sell the family home to her son and i for 1/2 of its appraised value. the money that we pay her (1/2) will go to my husband's sister. so we get the house and she gets half the appraised value. we need to make improvements so need to get a loan. we were told that my mother-in-law can quit claim the house to my husband and i and then do a refinance to get the money to pay her (that will go to his sister) and have extra money for improvements. is this a good thing to do? what are the tax implications down the road for us if we eventually sell the house for obviously much more than we paid my mother-in-law (1/2 the current value)?
[color=blue:a9234e5959]follow-up question to the one above: are we technically getting the entire value of the house and gifting 1/2 to my husband's sister (the money mentioned above going to my mother-in-law)? will she have to deal with gift tax issues when we give her the money now (1/2 the value of the house) and will we have gift tax issues in the future if we sell the house?[/color:a9234e5959]
[color=blue:a9234e5959]follow-up question to the one above: are we technically getting the entire value of the house and gifting 1/2 to my husband's sister (the money mentioned above going to my mother-in-law)? will she have to deal with gift tax issues when we give her the money now (1/2 the value of the house) and will we have gift tax issues in the future if we sell the house?[/color:a9234e5959]
Hi Dasmith,
Welcome to the forums.
The concept of gift taxes arises when someone is quitclaiming the property to another person at a value less than the value of the property gifted or without any money transfer in between. And, it is the grantor who has to pay the taxes. But there are certain limitations also.
In your situation, if your mother quitclaims the property to you and your husband, she will not be able to refinance because her name will not be on the title. So, it is better that she sells it to you in order to get the money.
Down the line in future if you sell the property at a price much higher such that you can earn higher amount of profit, then you will have to pay capital gains tax on the profit from the sale. However, if you qualify for exemptions, then there's no need to pay the taxes.
Take Care
Welcome to the forums.
The concept of gift taxes arises when someone is quitclaiming the property to another person at a value less than the value of the property gifted or without any money transfer in between. And, it is the grantor who has to pay the taxes. But there are certain limitations also.
In your situation, if your mother quitclaims the property to you and your husband, she will not be able to refinance because her name will not be on the title. So, it is better that she sells it to you in order to get the money.
Down the line in future if you sell the property at a price much higher such that you can earn higher amount of profit, then you will have to pay capital gains tax on the profit from the sale. However, if you qualify for exemptions, then there's no need to pay the taxes.
Take Care
Hi Dasmith,
You had asked about tax implications while selling the house previously also and some other community members replied to it on this page: http://www.mortgagefit.com/propertytransfer/housesale-capitalgainstax.html
Kindly have a look at their suggestions.
Miller
You had asked about tax implications while selling the house previously also and some other community members replied to it on this page: http://www.mortgagefit.com/propertytransfer/housesale-capitalgainstax.html
Kindly have a look at their suggestions.
Miller
"gifting 1/2 to my husband's sister"
Your mother in law is gifting to you as she will be getting half of its actual value.
"Will she have to deal with gift tax issues when we give her the money now"
Gift tax issues are for mother in law as she is the owner of the house.
If you pay her directly then you are making a monetary gift to her and you will have to consider gift tax implications. And as your mother in law will give the house for zero consideration she will also have to look into gift tax matters.
"will we have gift tax issues in the future if we sell the house?"
If you sell the house and make a profit then capital gain taxes are to be calculated as it is not considered a gift.
Your mother in law is gifting to you as she will be getting half of its actual value.
"Will she have to deal with gift tax issues when we give her the money now"
Gift tax issues are for mother in law as she is the owner of the house.
If you pay her directly then you are making a monetary gift to her and you will have to consider gift tax implications. And as your mother in law will give the house for zero consideration she will also have to look into gift tax matters.
"will we have gift tax issues in the future if we sell the house?"
If you sell the house and make a profit then capital gain taxes are to be calculated as it is not considered a gift.
Hi Damsell,
When you sell the house in future, you may have to pay capital Gains tax and not any Gift tax. You will have to pay the required capital gains tax on the profit earned from selling the house.
When you sell the house in future, you may have to pay capital Gains tax and not any Gift tax. You will have to pay the required capital gains tax on the profit earned from selling the house.