Posted by Don D. on July 22, 2003 at 09:22:09:
Hi Ed…
Is signing over the property to me for one year the same as seller financing? Also, will signing it over be considered a gift which will incur gift taxes?
buying parent’s duplex - Posted by Don D.
Posted by Don D. on July 21, 2003 at 09:29:01:
Hello,
I’m definitely a newbie and would like some advice on the best way to purchase my parent’s duplex property. They are willing to sell it to me for the amount of the remainder of their mortgage (approx. $100,000). They bought the house about 10 years ago for $180,000… so I’m buying way below market value. They will still live in one of the units after closing and there is a tenant renting the other unit for $900/month. What is the best and most advantageous way for me to finance this transaction?
Re: buying parent’s duplex - Posted by Cathlin
Posted by Cathlin on July 21, 2003 at 18:37:33:
Don,
You’ll want to talk to a competent estate planning or tax attorney and/or CPA about the tax implications of this transaction. I am not a CPA so I cannot advise you, but I do recognize a couple of potential problems right away. If you don’t structure the deal correctly both you and your parents could face unintended tax consequences. Gift tax and depreciation recapture could be issues. Renting to relatives at below-market rates can be problematic. Your expenses are limited to total rents. No losses are allowed. They must be carried forward. See the IRS FAQ http://www.irs.gov/faqs/page/0,,id%3D15913,00.html
Good luck! It’s great that your parents want to help you get started. Mine did the same for me.
-Cathlin
Re: buying parent’s duplex - Posted by Ed Garcia
Posted by Ed Garcia on July 21, 2003 at 10:30:22:
Don,
There are many ways this deal can be put together.
Because these are your parents and they are giving you a deal with built in equity, my suggestion if there is no sense of urgency. Is for you to have your parents sign the property over to you for one year with you making the payments on the 100K loan.
After a year the deal can be treated as a refi, and you can refinance it, which would allow you to buy it with no money down.
Ed Garcia