Posted by Nate on March 21, 2001 at 19:07:34:
I don’t know, as Harley-CA stated you haven’t posted enough information for us to be able to determine it.
Nate
1st home dilema…please help! - Posted by AnnieREA
Posted by AnnieREA on March 21, 2001 at 07:47:42:
This will be my husband’s and my first home. It will be our primary residence. We are getting it at a great price due to seller’s divorce. The loan process is almost done, however, the seller’s attorney told her she’d pay $30,000 in taxes if she sold the house and that in order for her not to pay that much, her son would have to keep it in his name for a total of 2 years. Here’s the breakdown:
She transferred the title to her 23yr old son 6 months ago.
He just started a job at $34,000 a year.
The house has $40,000 in equity. Sales price is $100,000.
The attorney says it will look like her son made $74,000 in one year.
He is an employee and is unmarried, so he has no tax advantages.
1- Is that really how much they’ll have to pay in taxes?
2- If so, how can we work around that and get that house?
THANK YOU VERY MUCH!!
Re: 1st home dilema…please help! - Posted by Harley-CA
Posted by Harley-CA on March 21, 2001 at 18:29:06:
Annie,
It is difficult to know the seller’s tax situation without knowing all the details of the sellers finances, including expenses, depreciation they’ve taken on the home, one-time homeowner’s exemption, etc. As far as the son is concerned, if the parents “gave” the home to the son, then the son has some tax ramifications already. The attorney may have a clearer tax picture than it will be possible for you to get from such a distance.
At any rate, any “gain” or “profit” that the son realizes from the deal (don’t know if there is any) would be taxed. On top of that, the gain may raise him to a higher tax bracket which would create a heavier tax burden at tax time.
Tell her attorney about using a trust to transfer the property into. The attorney should know of ways to defer taxes using this sort of entity and they are relatively easy to set up.
I’m not an attorney and I don’t know the seller’s situation as far as how much “profit” this sale will produce for them so I can’t really comment one way or another. Just know that there are ways to use entities (corporations, trusts, etc.) to lessen and sometimes eliminate a tax liability. You’ll definately need to discuss this sort of thing with either their attorney or one of your own.
Hope this helps.
Harley-CA
Re: 1st home dilema…please help! - Posted by Nate
Posted by Nate on March 21, 2001 at 09:48:58:
Phil is right - if you have a signed P/S agreement with the actual seller (son, or woman, doesn’t matter as long as your agreement is with the right one), then their taxes are their problem, not yours.
Talk to your lawyer about it.
NT
Re: 1st home dilema…please help! - Posted by phil fernandez
Posted by phil fernandez on March 21, 2001 at 08:28:58:
Do you have a signed purchase and sales agreement and with whom? You refer to the woman as the seller yet it sounds like the son has been either deeded the house or his name was put on the deed six months ago. If you have a signed agreement with the right parties then I don’t see how they can, after the fact change it.
I do not follow where the $74,000 number is coming from.
I would definitely talk to your lawyer today about this concern.
Re: 1st home dilema…please help! - Posted by AnnieREA
Posted by AnnieREA on March 21, 2001 at 10:09:34:
I have a contract, however, I gave her my word that I would not pass it on to the lender until she found out about taxes. We raised the sales price from 97K to 100K so she could pay closing costs without giving up her 97K. That’s why she wanted to check on her taxes, to see if the extra 3K would affect her. She has had many much higher offers for the house, however, she’s kept her word as far as letting us buy it. She’s even been ok with the fact that she has to wait until end of next month to close because our loan is taking a long time. And all this before we got a signed contract.
Re: 1st home dilema…please help! - Posted by AnnieREA
Posted by AnnieREA on March 21, 2001 at 10:05:35:
The $74,000 is his income plus the equity.
I have a contract with his name on it, however, the mother is the one who’s been paying the mortgage.
Re: 1st home dilema…please help! - Posted by Nate
Posted by Nate on March 21, 2001 at 13:35:26:
Is this woman a friend, an acquaintance, or just someone you’re buying property from?
This doesn’t look like a win-win situation. Either you force her to sell to you on the terms of your contract, and she loses, or you let her go sell to someone else at a higher price, and you lose.
Which choice you take will depend on your relationship with this woman and how you feel about screwing her over vs. being screwed over yourself.
Nate
Re: 1st home dilema…(IS THE TAX PART ACCURATE?) - Posted by AnnieREA
Posted by AnnieREA on March 21, 2001 at 13:48:19:
I would like to know if what her lawyer said is true?