Re: Parents Want My House, a real thinker!!! - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on July 01, 2002 at 20:35:15:
Kyle, Dave T has already given you some accurate advice. Quick turn property: ordinary income, no capital gains treatment, no 1031 tax deferred exchange, no installment sale treatment.
When they sell their own home they can take out all the profit, after paying off their mortgage, with no federal capital gains tax. The exclusion is up to $250K per individual owner, $500K for a married couple.
There is not much profit anyway, so I suggest you just give the house to your folks for the total investment you have into the property–$183K. I’m sorry, since you will make no profit, there is no income tax to be paid. Better luck next time.
Now, since your folks love you, there is always the possibility that they might, completely independently of the property sale, of course, they just might give you some gift of cash. Just out of love.
Anybody can give a gift to another person of up to $11K in any calendar year and there are no federal tax consequences–at least no tax for either side to pay. Now, it used to be $10K a year, and I think $11K is the correct amount this year, but I urge you to consult an attorney, CPA, the IRS, or possibly the internet to verify this. I am not any of those individuals or entities.
Any one person can gift to any other one person $11K. If both your mother and father were generous, they could gift you up to $22K in one year. Not necessarily all at the same time. If you are married, they could gift a similar sum to your spouse. All tax free.
I believe that the result of this generousity is that their lifetime exclusion from the federal estate tax is reduced by the amount that they give away. The lifetime exclusion is something like $1.1 or 1.2 Mill these days, I think. Again, if you want to know more about this sort of thing, you should not rely on my memory, but consult professionals or the tax laws.
I don’t know the rental rates in your area, but in most of the country their old house would not make much sense as a rental property. There would be too little income to pay all the expenses of the property and provide a profit, on a cash flow basis. However, they might want to check out rental rates for similar properties, just in case that appealed to them. It is possible that rental rates are high relative to the value of the properties in your area.
Sorry you will not be making any profit on this first venture. Maybe you will do better in the future.
Good InvestingRon Starr****************