Posted by Eric on November 10, 2004 at 13:04:56:
So, if the guy buys the house for 75k, and then refinances for cash out at 125k in the future. The parents are still paying capital gains on the FMV of 125k. They are willing to do anything to limit the amount of taxes paid. Do you know of any ways to do this?
Tax Implications on two purchases - Posted by Eric
Posted by Eric on November 09, 2004 at 15:49:05:
What is the easiest way to do this. Have a client that wants to buy a property as a NOO that his parents have owned as a NOO for 12+years. His parents will take 75k for it and the appraisal came in at 125k. He wants to obtain a loan for 125k, which is not a problem, and his parents will give him back 50k which he will use some of to put down on another property. The problem is his parents do not want to pay capital gains or otherwise on the extra 50k. Is there an easier way to do this??? They are open to doing anything, and I am not familiar in ways to avoid tax issues. Any help would be appreciated.
Re: Tax Implications on two purchases - Posted by Dave T
Posted by Dave T on November 10, 2004 at 10:32:51:
Whether the parents sell the property to their son for $125K or sell the property to their son for $75K, the parents will still have their capital gain calculated from the FMV of the property on the date of the sale.
This is one of the quirks of related party transactions. When a below market price is involved the difference between the sale price and FMV is considered part of the sale price and treated as a gift of equity.
If I understand the parents’ issue, they are willing to give away $50K but don’t want to pay the capital gains tax out of pocket. Why not just pay the taxes out of the $50K, then give the son whatever is left over?