Posted on: 22nd Dec, 2010 01:41 pm
Here is the situation:
I currently own a home. Let x be the principal balance left on the mortgage.
My dad would like to buy that property from me for x + $20,000. He has that payoff amount sitting in his account and do NOT need financing. I am trying to find the cheapest way to do it without unintended tax implications. I contacted my lender and the process was discribed to me as follows:
Step1:send a letter to the assumption department stating that I am going to payoff the mortgage and that I am going to change the title from my name to my dad's name and would like to be release from all liabilities
Step2: wait for their response/approval
step3: upon approval, I go to the title department and change the name on the deed/title from my name to my dads name and my dad pays me x+$20000.
Step4: I contact the payoff department and wire the money to them.
My questions:
1- Am my missing steps in selling my house (additional paper work needed that I am not doing...) and is this going to get me in some unintended legal problems
2- Is there some unintended negative tax implications this particular process.
3- When my dad decides to sell the house will this process hurt him in anyway (If for somehow the title search shows that this sale process had some problem...)
4- finally is there a reason to hire a title company or a real estate lawyer for such a seemingly simple transaction.
I currently own a home. Let x be the principal balance left on the mortgage.
My dad would like to buy that property from me for x + $20,000. He has that payoff amount sitting in his account and do NOT need financing. I am trying to find the cheapest way to do it without unintended tax implications. I contacted my lender and the process was discribed to me as follows:
Step1:send a letter to the assumption department stating that I am going to payoff the mortgage and that I am going to change the title from my name to my dad's name and would like to be release from all liabilities
Step2: wait for their response/approval
step3: upon approval, I go to the title department and change the name on the deed/title from my name to my dads name and my dad pays me x+$20000.
Step4: I contact the payoff department and wire the money to them.
My questions:
1- Am my missing steps in selling my house (additional paper work needed that I am not doing...) and is this going to get me in some unintended legal problems
2- Is there some unintended negative tax implications this particular process.
3- When my dad decides to sell the house will this process hurt him in anyway (If for somehow the title search shows that this sale process had some problem...)
4- finally is there a reason to hire a title company or a real estate lawyer for such a seemingly simple transaction.
Hi hwassaf!
Welcome to forums!
The steps that the lender has mentioned to you is correct. As far as the property transfer is concerned, you will have to sign a quitclaim deed and transfer the property to him. If you receive a profit from the sale of the property, then you'll be liable for paying capital gains tax on it. Moreover, if there is a pre-payment penalty clause mentioned in your loan documents, then you may be liable for paying it as well.
I don't think your father will face any problems when he decides to sell off the property. It is better to contact a real estate attorney in order to get the deeds drafted.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
The steps that the lender has mentioned to you is correct. As far as the property transfer is concerned, you will have to sign a quitclaim deed and transfer the property to him. If you receive a profit from the sale of the property, then you'll be liable for paying capital gains tax on it. Moreover, if there is a pre-payment penalty clause mentioned in your loan documents, then you may be liable for paying it as well.
I don't think your father will face any problems when he decides to sell off the property. It is better to contact a real estate attorney in order to get the deeds drafted.
Feel free to ask if you've further queries.
Sussane
Hi hwassaf,
You should contact a real estate attorney in order to to get the quitclaim deed drafted. The attorney will also help you in filling out the deed, notarizing it and recording it at the county recorder's office. As far as I know, the sale price will be mentioned in the property deed.
If you gain a profit after selling the property, then you will be liable for paying capital gains tax on that profit. You can get online quitclaim deed form for Massachusetts from the given page: "http://www.uslegalforms.com/deedforms/massachusetts-deed-forms.htm"
However, it is always better to contact an attorney and get the deed drafted from him.
Thanks
You should contact a real estate attorney in order to to get the quitclaim deed drafted. The attorney will also help you in filling out the deed, notarizing it and recording it at the county recorder's office. As far as I know, the sale price will be mentioned in the property deed.
If you gain a profit after selling the property, then you will be liable for paying capital gains tax on that profit. You can get online quitclaim deed form for Massachusetts from the given page: "http://www.uslegalforms.com/deedforms/massachusetts-deed-forms.htm"
However, it is always better to contact an attorney and get the deed drafted from him.
Thanks
The bank is simple. Don't take advice from 800#'s. Ever. You ask for payoff, send that amount, their lien goes away.
I'd take up juggling live grenades before I'd do what you are doing. You have a mess of tax consequences. Any advice to the contrary is utterly wrong.
You can't sell a property for "x loan + $20k." It's either fair market or not. You're opening up gift, estate, income, and property tax issues in one fell swoop. I think you could conceivably pay tax on the same monies up to 3 or 4 times. That would suck.
I presume this started out trying to achieve some goal and it ended up here. Here is not good. What was the original objective of this?
My $0.02,
------------------
Chris Richter
Senior Mortgage Planner
Luett Mortgage Group, a production unit of Wintrust Mortgage
773-931-2424 - direct
crichter (at) luettmortgagegroup.com
http://www.luettmortgagegroup.com/
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I'd take up juggling live grenades before I'd do what you are doing. You have a mess of tax consequences. Any advice to the contrary is utterly wrong.
You can't sell a property for "x loan + $20k." It's either fair market or not. You're opening up gift, estate, income, and property tax issues in one fell swoop. I think you could conceivably pay tax on the same monies up to 3 or 4 times. That would suck.
I presume this started out trying to achieve some goal and it ended up here. Here is not good. What was the original objective of this?
My $0.02,
------------------
Chris Richter
Senior Mortgage Planner
Luett Mortgage Group, a production unit of Wintrust Mortgage
773-931-2424 - direct
crichter (at) luettmortgagegroup.com
http://www.luettmortgagegroup.com/
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