Posted on: 25th Dec, 2007 04:14 pm
so the title of the house my husband and i are living in is under my name and my sister's. we want to "buy out" my sister, remove her name from the title, and put my husband's name on the title. how to go about doing this?
the house is free and clear. tell me if this is correct:
estimated appraisal value of home is $1.4 million and we are proposing to take out a mortgage to pay half the value of the home and give the cash to my sister to buy her out. so this is equivalent to a "refinance with cash buy out" for $700k for a home valued at $1.4 million. we use a quit claim deed to transfer the titles.
giving my sister the $700k cash is considered a "gift" and she would have to pay income tax on it? is there a gift tax we have to pay? are there any other considerations you'll would recommend we watch out for?
thanks for your help!
the house is free and clear. tell me if this is correct:
estimated appraisal value of home is $1.4 million and we are proposing to take out a mortgage to pay half the value of the home and give the cash to my sister to buy her out. so this is equivalent to a "refinance with cash buy out" for $700k for a home valued at $1.4 million. we use a quit claim deed to transfer the titles.
giving my sister the $700k cash is considered a "gift" and she would have to pay income tax on it? is there a gift tax we have to pay? are there any other considerations you'll would recommend we watch out for?
thanks for your help!
Hi mortgagemavin,
Welcome to the forum and Merry Christmas :)
If so then your sister has to quitclaim her share of property to your husband. Don't forget to notarized and record the deed in the county recorder office. Contact with an attorney, he will prepare the deed for you.
And you will do cash out refinance on you and your husband's name to remove your sister's name from the mortgage.
Your sister has to pay federal gift tax as the annual gift tax exemption limit is $12,000.
Feel free to ask if you have any further questions.
Best of luck,
Larry
Welcome to the forum and Merry Christmas :)
If so then your sister has to quitclaim her share of property to your husband. Don't forget to notarized and record the deed in the county recorder office. Contact with an attorney, he will prepare the deed for you.
And you will do cash out refinance on you and your husband's name to remove your sister's name from the mortgage.
Your sister has to pay federal gift tax as the annual gift tax exemption limit is $12,000.
Feel free to ask if you have any further questions.
Best of luck,
Larry
Hi,
Welcome to Mortgagefit discussion board.
Yes I agree with Larry that your sister has to quitclaim to your husband. Is she willing to do so?
I you need not to pay tax but your sister will have to pay tax if you buy her out. The annual gift tax exemption limit per person is $12,000 but she will get $ 700,000 as you have said. So she has to pay federal gift tax.
Do let me know if you have any other questions.
Thanks
Blue
Welcome to Mortgagefit discussion board.
Yes I agree with Larry that your sister has to quitclaim to your husband. Is she willing to do so?
I you need not to pay tax but your sister will have to pay tax if you buy her out. The annual gift tax exemption limit per person is $12,000 but she will get $ 700,000 as you have said. So she has to pay federal gift tax.
Do let me know if you have any other questions.
Thanks
Blue
(I don't know why my profile name came out "mortgagemavin", sorry).
I know it's best to talk to an attorney or accountant, but I'd like to ask anyway what ya'll think:
At http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
It says: "Who pays the gift tax?
The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. "
At http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
It says:
"The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not."
So how is the $700,000 I give to my sister a "gift" if she is giving us the title, effectively half the value of the house in return? Would a "sales contract" be better than a "quit claim deed" then to avoid the transaction labelled as a "gift"?
Or should I take out a $700,000 "purchase" mortgage, with the cash out to be given to my sister, the half-property "seller"?
I know it's best to talk to an attorney or accountant, but I'd like to ask anyway what ya'll think:
At http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
It says: "Who pays the gift tax?
The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. "
At http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
It says:
"The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not."
So how is the $700,000 I give to my sister a "gift" if she is giving us the title, effectively half the value of the house in return? Would a "sales contract" be better than a "quit claim deed" then to avoid the transaction labelled as a "gift"?
Or should I take out a $700,000 "purchase" mortgage, with the cash out to be given to my sister, the half-property "seller"?
Hello Mortgagemavin,
You are correct. This will not be considered as a gift for anyone of you. You are paying her the full value for her share of equity and she is receiving the money against her share of the property. So this is like a buying-selling transaction as you are buying her out and not a gift.
So, I think, none of you are responsible to pay a gift tax. If you had paid, say for example, $500k for her share instead of the full amount she should get then that might have been considered as a gift.
Since you do not have any mortgage on your property, the loan which you are planning to take will not be considered as a refinance but that will be a mortgage itself where you keep your house as the collateral. From this loan you may give $700k to your sister and keep the rest with yourself.
You have to talk to lenders to find out the loan amount which you may qualify for as well as the interest rates that you are being offered.
You are correct. This will not be considered as a gift for anyone of you. You are paying her the full value for her share of equity and she is receiving the money against her share of the property. So this is like a buying-selling transaction as you are buying her out and not a gift.
So, I think, none of you are responsible to pay a gift tax. If you had paid, say for example, $500k for her share instead of the full amount she should get then that might have been considered as a gift.
Since you do not have any mortgage on your property, the loan which you are planning to take will not be considered as a refinance but that will be a mortgage itself where you keep your house as the collateral. From this loan you may give $700k to your sister and keep the rest with yourself.
You have to talk to lenders to find out the loan amount which you may qualify for as well as the interest rates that you are being offered.
WHAT ARE THE STEPS IF YOU WANT TO BUY OUT OF YOUR HALF OF THE PROPERTY?
Hello Tina,
If you want to buy out a person his share of equity then he has to remove his name from the title either with a quit claim deed or with a warranty deed. If he is also on the mortgage then that should be refinanced under the name of the person who remains on the title.
You have to pay him the money that he should receive for his share of equity. You may make a settlement agreement to fix the terms and conditions of making the payment.
You may consult an attorney if that is required.
If you want to buy out a person his share of equity then he has to remove his name from the title either with a quit claim deed or with a warranty deed. If he is also on the mortgage then that should be refinanced under the name of the person who remains on the title.
You have to pay him the money that he should receive for his share of equity. You may make a settlement agreement to fix the terms and conditions of making the payment.
You may consult an attorney if that is required.
fyi, I have repeatedly been told by mortgage lenders that my situation is a "refinance" since my name is already on the title, even though the house is free and clear. They said anyway the closing costs will be less.
Hi Mavin,
Welcome back.
Well, as much as I've studied your situation, I don't think it's a refinance because you say you don't have a mortgage to pay for. A refinance is done when you take out a home loan to pay off an existing loan against your home, but in your case, the house is free and clear. I think there's some miscommunication going on. Please consult a few more lenders before you go ahead.
Good luck and have a great new year :)
Welcome back.
Well, as much as I've studied your situation, I don't think it's a refinance because you say you don't have a mortgage to pay for. A refinance is done when you take out a home loan to pay off an existing loan against your home, but in your case, the house is free and clear. I think there's some miscommunication going on. Please consult a few more lenders before you go ahead.
Good luck and have a great new year :)
Hi Mortgagemavin,
You are correct in the way you are proceeding to buy out your sister. Your sister will sign the quit claim deed at closing.
I do want to clarify that the funds she recieves will be considered capital gains. Capital gains are taxed less than income tax so hopefully that helps a bit.
You are correct in the way you are proceeding to buy out your sister. Your sister will sign the quit claim deed at closing.
I do want to clarify that the funds she recieves will be considered capital gains. Capital gains are taxed less than income tax so hopefully that helps a bit.
I want to clarify the issue of whether it is considered a refinance or not. It is indeed a refinance because you own the home. You don't need to have a mortgage on the property to refinance. There are only two types of transactions, purchase and refinance. You are not purchasing the home from anyone since you already own it. It's actually considered a cash out refinance. I can tell you with 100% certainty that it is a refinance.
Hi Tina,
You may need to refinance the property to pull cash out to pay off the other persons share of equity (if applicable). If the other person is on the mortgage that you are buying out then you need to refinance into just your name. If you do not need to buy out the other person or they are not on the mortgage then they can simply sign a quit claim to release themself off the deed.
You may need to refinance the property to pull cash out to pay off the other persons share of equity (if applicable). If the other person is on the mortgage that you are buying out then you need to refinance into just your name. If you do not need to buy out the other person or they are not on the mortgage then they can simply sign a quit claim to release themself off the deed.