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news
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      10-19-2013, 10:44 PM
My son lives near a small CT river, still his lender requires Flood
Insurance. Previously his yearly cost, for the Flood coverage was
~$2,400. He has most recently learned that his rate will soon SOAR.
Next year it will go up by over $12,000. He cannot afford to pay that
$14.4K premium. (His house cannot be lifted, as done by other CT shore
properties).

My wife and I are considering offering him a First mortgage, and he
would then pay off his current loan. We would not expect him to have
Flood insurance.

I have no real idea what we are in store for, should we provide the
financing. I believe that that there is a minimum interest rate we
must charge, which we need to annually report to the IRS. Do we need
an attorney to set up the re-fi? Can we collect the payments, then
report to the IRS the Year End loan details.

I sure would appreciate any/ all advise. My son thought his only
option was to sell the house.

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SD
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      10-19-2013, 11:10 PM

>
> financing. I believe that that there is a minimum interest rate we
>
> must charge, which we need to annually report to the IRS. Do we need
>
> an attorney to set up the re-fi? Can we collect the payments, then
>
> report to the IRS the Year End loan details.
>
>


For the minimum interest you the long term AFR: http://apps.irs.gov/app/picklist/list/federalRates.html

When you file your tax return include form 6252: http://www.irs.gov/uac/Form-6252,-In...nt-Sale-Income

An alternative approach would be to "gift" your parents the money. This may or may not have tax consequences. If you want to go this route you should talk to someone that understands gifting, and can take a look at your financial situation

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Stuart A. Bronstein
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      10-19-2013, 11:18 PM
"news" <> wrote:

> My son lives near a small CT river, still his lender requires
> Flood Insurance. Previously his yearly cost, for the Flood
> coverage was ~$2,400. He has most recently learned that his rate
> will soon SOAR. Next year it will go up by over $12,000. He
> cannot afford to pay that $14.4K premium. (His house cannot be
> lifted, as done by other CT shore properties).
>
> My wife and I are considering offering him a First mortgage, and
> he would then pay off his current loan. We would not expect him
> to have Flood insurance.


Do you think that going without insurance is wise? If there is a
flood, it could be very, very expensive.

> I have no real idea what we are in store for, should we provide
> the financing. I believe that that there is a minimum interest
> rate we must charge, which we need to annually report to the
> IRS. Do we need an attorney to set up the re-fi? Can we collect
> the payments, then report to the IRS the Year End loan details.


You don't need a lawyer - you can go to the IRS website and
determine the minimum interest you need to charge. It is
reevaluated and the interest rate can change every month, though
once you set it up, you don't have to change your contract rate.

If you want your son to be able to deduct the interest payments,
you will have to place a mortgage on the house. If there are title
insurance companies in CT, they should be able to set it up,
including drawing up all the documents. If not, you will be better
off using a lawyer.

An alternative might be for you to subsidize his insurance - you
can give up to $14,000 per person per year without having to file a
gift tax return. If you are married you together can give him up
to $28,000.

Another alternative might be for you to buy an interest in his
house. You could then have him buy it back over time, or you can
gift it back to him if you prefer. In that case there should be no
interest, though the amount he might have to pay back might
increase as the value of the property does.

--
Stu
http://DownToEarthLawyer.com

--
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
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John Levine
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      10-20-2013, 12:13 AM
>> My son lives near a small CT river, still his lender requires
>> Flood Insurance. Previously his yearly cost, for the Flood
>> coverage was ~$2,400. He has most recently learned that his rate
>> will soon SOAR. Next year it will go up by over $12,000. He
>> cannot afford to pay that $14.4K premium. (His house cannot be
>> lifted, as done by other CT shore properties).


We have flood insurance on our beach house, and the price is clearly
appropriate for the risk. Small rivers have an unfortunate habit of
becoming very large rivers when there's an unusual amount of rain.

If he can't afford $2400 for insurance, he surely can't afford to fix
flood damage, which is *not* covered by regular home insurance. My
advice would either be to figure out how to pay the insurance, or sell
the house and move somewhere higher.

--
Regards,
John Levine, , Primary Perpetrator of "The Internet for Dummies",
Please consider the environment before reading this e-mail. http://jl.ly

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
 
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Salmon Egg
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      10-20-2013, 06:23 AM
In article <>,
"news" <> wrote:

> My son lives near a small CT river, still his lender requires Flood
> Insurance. Previously his yearly cost, for the Flood coverage was
> ~$2,400. He has most recently learned that his rate will soon SOAR.
> Next year it will go up by over $12,000. He cannot afford to pay that
> $14.4K premium. (His house cannot be lifted, as done by other CT shore
> properties).
>
> My wife and I are considering offering him a First mortgage, and he
> would then pay off his current loan. We would not expect him to have
> Flood insurance.
>
> I have no real idea what we are in store for, should we provide the
> financing. I believe that that there is a minimum interest rate we
> must charge, which we need to annually report to the IRS. Do we need
> an attorney to set up the re-fi? Can we collect the payments, then
> report to the IRS the Year End loan details.
>
> I sure would appreciate any/ all advise. My son thought his only
> option was to sell the house.


We made such a loan to my son although we do not have the complication
of a river nearby. We did require fire insurance, but that is reasonable
outside fire prone areas. He would have bought fire insurance anyway. We
also have a first trust deed on the property.

The IRS publishes rates on a regular basis indicating minimum applicable
rates that are sufficient to make his interest payments deductible to
him. When those rates went down, we renegotiated the rate.

The IRS has bugged him on this arrangement already. But when he showed
the receipts and cancelled checks, they stopped bothering him. I do
report all the interest as income. It is the only income I get that is
not reported to the IRS. I may not be doing it correctly, but I am also
not trying to cheat on my taxes either.

So far, the IRS has given me no problem. By now, the interest rate is so
low, that it is not a big tax advantage to my son. He is, however,
paying the principle down much faster than he otherwise would do.

I have just described my experience on this matter. It may not be
completely proper. but it works for us. We are small potatoes for the
IRS. I have the feeling that there are other people much richer than me,
who are gaming the system.

In any event, my relations with the IRS have been good. I keep on
getting requests for more tax. Unfortunately, whenever they ask for
more, I really did make a mistake. Once in a while they may actually say
that I paid too much tax, and I get a refund. I do not question those
decisions very thoroughly.

--

Sam

Conservatives are against Darwinism but for natural selection.
Liberals are for Darwinism but totally against any selection.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
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news
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      10-21-2013, 11:29 PM
On Sat, 19 Oct 2013 19:18:36 EDT, "Stuart A. Bronstein"
<> wrote:

>"news" <> wrote:
>
>> My son lives near a small CT river, still his lender requires
>> Flood Insurance. Previously his yearly cost, for the Flood
>> coverage was ~$2,400. He has most recently learned that his rate
>> will soon SOAR. Next year it will go up by over $12,000. He
>> cannot afford to pay that $14.4K premium. (His house cannot be
>> lifted, as done by other CT shore properties).
>>
>> My wife and I are considering offering him a First mortgage, and
>> he would then pay off his current loan. We would not expect him
>> to have Flood insurance.

>
>Do you think that going without insurance is wise? If there is a
>flood, it could be very, very expensive.
>
>> I have no real idea what we are in store for, should we provide
>> the financing. I believe that that there is a minimum interest
>> rate we must charge, which we need to annually report to the
>> IRS. Do we need an attorney to set up the re-fi? Can we collect
>> the payments, then report to the IRS the Year End loan details.

>
>You don't need a lawyer - you can go to the IRS website and
>determine the minimum interest you need to charge. It is
>reevaluated and the interest rate can change every month, though
>once you set it up, you don't have to change your contract rate.
>
>If you want your son to be able to deduct the interest payments,
>you will have to place a mortgage on the house. If there are title
>insurance companies in CT, they should be able to set it up,
>including drawing up all the documents. If not, you will be better
>off using a lawyer.
>
>An alternative might be for you to subsidize his insurance - you
>can give up to $14,000 per person per year without having to file a
>gift tax return. If you are married you together can give him up
>to $28,000.
>
>Another alternative might be for you to buy an interest in his
>house. You could then have him buy it back over time, or you can
>gift it back to him if you prefer. In that case there should be no
>interest, though the amount he might have to pay back might
>increase as the value of the property does.
>
>--
>Stu
>http://DownToEarthLawyer.com



My son/ fiancee have only lived at this house for a bit over one year.
Their immediate neighbors (and prior/ original owner) ALL note that
there has never been a situation where his house was flooded. There
was one instance where there 1st floor garage area had water - but
that is not covered by flood insurance.

My son cannot afford >$14k in annual flood insurance premiums, nor do
I think that coverage is a reasonable "value". He is unfortunatley
part of the recent, FEMA flood map/ rates updates.

I am MOST interested in your noted option " Another alternative might
be for you to buy an interest in his house" . We did provide them,
with the initial downpayment, via TY 2012/13 gifts. We are surely
ameniable to funding the exsting balance. I apologize for asking for
more advise- as to how we might accomplish your suggestion.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
 
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news
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      10-21-2013, 11:29 PM
On 10/19/2013 5:13 PM, John Levine wrote:
>>> My son lives near a small CT river, still his lender requires
>>> Flood Insurance. Previously his yearly cost, for the Flood
>>> coverage was ~$2,400. He has most recently learned that his rate
>>> will soon SOAR. Next year it will go up by over $12,000. He
>>> cannot afford to pay that $14.4K premium. (His house cannot be
>>> lifted, as done by other CT shore properties).

>
> We have flood insurance on our beach house, and the price is clearly
> appropriate for the risk. Small rivers have an unfortunate habit of
> becoming very large rivers when there's an unusual amount of rain.
>
> If he can't afford $2400 for insurance, he surely can't afford to fix
> flood damage, which is *not* covered by regular home insurance. My
> advice would either be to figure out how to pay the insurance, or sell
> the house and move somewhere higher.
>

Read the fine print in the flood insurance coverage. We spend part of
the year in Colorado, which had very unusual devastating floods in
September. Some of those very few property owners who do have flood
insurance found out that it excludes below grade flood damage (e.g.,
basements, crawl spaces). One couple we know of (both attorneys) had
their claim denied because 47 percent of the damage was below-grade.
They read and understood the flood insurance policy when they bought the
home but had no choice because the lender required it. Unless the home
is on stilts or perhaps the whole building is swept away, flood
insurance, even though it is a federal program offered through insurance
companies, may not cover the damage. This information is available on
the federal flood insurance program web site.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
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Stuart A. Bronstein
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      10-22-2013, 05:56 AM
"news" <> wrote:

> I am MOST interested in your noted option " Another alternative
> might be for you to buy an interest in his house" . We did
> provide them, with the initial downpayment, via TY 2012/13
> gifts. We are surely ameniable to funding the exsting balance. I
> apologize for asking for more advise- as to how we might
> accomplish your suggestion.


My thought was that instead of his borrowing the money from you, you
just pay off the loan in exchange for getting an ownership percentage
of the house reflecting your contribution as compared to your son's
contribution. That way you don't have to worry about mortgage
payments or figuring out minimum interest.

If you want him to pay you back, then a mortgage may be a good way to
go. In the alternative he could buy you out a bit at a time as he
goes along. The downside of that is that, while he won't be paying
interest, if the value of the house goes up he will pay more due to
that. If you do that you should have the house appraised at least
annually, and have the amount he buys back based on those values.

--
Stu
http://DownToEarthLawyer.com

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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Pico Rico
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      10-22-2013, 02:53 PM

"Salmon Egg" <> wrote in message
news:SalmonEgg-...
> In article <>,
> "news" <> wrote:
>
>> My son lives near a small CT river, still his lender requires Flood
>> Insurance. Previously his yearly cost, for the Flood coverage was
>> ~$2,400. He has most recently learned that his rate will soon SOAR.
>> Next year it will go up by over $12,000. He cannot afford to pay that
>> $14.4K premium. (His house cannot be lifted, as done by other CT shore
>> properties).
>>
>> My wife and I are considering offering him a First mortgage, and he
>> would then pay off his current loan. We would not expect him to have
>> Flood insurance.
>>
>> I have no real idea what we are in store for, should we provide the
>> financing. I believe that that there is a minimum interest rate we
>> must charge, which we need to annually report to the IRS. Do we need
>> an attorney to set up the re-fi? Can we collect the payments, then
>> report to the IRS the Year End loan details.
>>
>> I sure would appreciate any/ all advise. My son thought his only
>> option was to sell the house.

>
> We made such a loan to my son although we do not have the complication
> of a river nearby. We did require fire insurance, but that is reasonable
> outside fire prone areas. He would have bought fire insurance anyway. We
> also have a first trust deed on the property.
>
> The IRS publishes rates on a regular basis indicating minimum applicable
> rates that are sufficient to make his interest payments deductible to
> him. When those rates went down, we renegotiated the rate.
>
> The IRS has bugged him on this arrangement already. But when he showed
> the receipts and cancelled checks, they stopped bothering him. I do
> report all the interest as income. It is the only income I get that is
> not reported to the IRS. I may not be doing it correctly, but I am also
> not trying to cheat on my taxes either.
>
> So far, the IRS has given me no problem. By now, the interest rate is so
> low, that it is not a big tax advantage to my son. He is, however,
> paying the principle down much faster than he otherwise would do.
>
> I have just described my experience on this matter. It may not be
> completely proper. but it works for us. We are small potatoes for the
> IRS. I have the feeling that there are other people much richer than me,
> who are gaming the system.
>
> In any event, my relations with the IRS have been good. I keep on
> getting requests for more tax. Unfortunately, whenever they ask for
> more, I really did make a mistake. Once in a while they may actually say
> that I paid too much tax, and I get a refund. I do not question those
> decisions very thoroughly.
>
> --
>
> Sam


another alternative is to loan the money and make a gift each year to reduce
the amount of the loan.

--
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
 
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Stuart Bronstein
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      10-22-2013, 11:08 PM
"Pico Rico" <> wrote:

> another alternative is to loan the money and make a gift each
> year to reduce the amount of the loan.


Yes, that is something that is done sometimes. But when you do that
the issue of imputed interest continues to be a problem. Either the
parents have to recognize interest that the child would have paid, or
the child has to recognize interest that is gifted by the parents.

--
Stu
http://DownToEarthLawyer.com

--
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<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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