Best Scenario for Purchasing Home With Parents

USA Discussion in 'Individuals' started by CaliforniaKid, May 15, 2018.

  1. CaliforniaKid

    CaliforniaKid

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    Hello,
    First post. I appreciate the help!

    So, my scenario is as follows:
    - My parents own two homes outright. One is their primary residence, one is a rental.

    - My parents co-own a condo with my wife and me (mortgage is ~$300k - ownership is 50/50 between parents and me). The reason they helped us buy was to write off the mortgage interest and property taxes (we split the deduction 50/50 as well).

    - My wife and I are looking to buy a new development with single family homes. We have been pre-approved on our own for $880k given a $200k down payment. $100k would need to come from parents as a gift.

    What is the best tax option for all parties?
    1. Receive the $100k "gift" from parents, which would result in a lower interest rate (than having them on the mortgage). This route would incur gift taxes since we would be over the $28k per person per parent. They would then help with the mortgage.

    2. Include them on the mortgage, which would result in a higher interest rate because this would not be their primary residence. This would not result in any gift taxes. Since my parents do not have a primary mortgage, or HELOC, but do have $300k mortgage for my current condo (realistically, only responsible for $150k), would any of the second mortgage be deductible?

    Looking for the best tax option for both my side and my parents'. Thanks for the help.
     
    CaliforniaKid, May 15, 2018
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  2. CaliforniaKid

    kirby VIP Member

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    As far as gift tax goes, it is no problem unless your folks are multi-millionaires. Gift tax annual FILING EXCLUSION for filing a gift tax return for 2018 is $15K paid by one person to another. Given that --Mom can give you $15K and your wife $15K then Dad can do the same. No gift tax return needed and no gift tax. If they go over that $15K to one person in 2018 then they have to file a gift tax return but also then they use their EXEMPTION, which for 2018 is $5.6MM for Mom and same for Dad. No tax due for Mom unless she pays over $5.6 MM in gifts and same amount for Dad. Total $11.2MM in gifts by Mom and Dad and no tax due. Nice problem to have!:)
     
    kirby, May 17, 2018
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