buying house from parents

Discussion in 'Real Estate' started by danielyp29, Dec 10, 2018.

  1. jmb

    jmb Well-Known Member

    Apr 12, 2006
    13,087
    944
    113
    Ratings:
    +3,986 / 213 / -5
    #21 jmb, Dec 10, 2018
    Last edited: Dec 10, 2018
    (edited second paragraph for clarity)
    Except it is. Not saying you are wrong but the appearance of "not fair" creates way more problems. I work in this space daily. Curt even mentions gifting strategies that are incredibly viable etc. That said if your parents are the bank you may have gifting issues if the cost is below AFR(applicable federal rate). I see more "uneven gifts" than is reasonable and the stress and anger it causes is readily avoidable. If there are sibs and they become unreasonable it is important for your parents to address early and quickly. If not it will be a **** show in the future.

    Generally speaking to make sure things are clean you want the sale to look like an "arms length" transaction. Meaning other reasonable sellers would engage in similar terms. If not there can be gifting issues. You also want to make sure that this transaction is not below market rates and your parents are not nearing a situation wherein they may need long-term care provided and their resources could be extinguished quicker than there are available. If this is a possibility you categorically want to get proper legal and tax advice.

    I could bore you to death(probably already have) but there are things you can do that will make this easier or harder.
     
  2. Clonefan32

    Clonefan32 Well-Known Member

    Nov 19, 2008
    14,261
    1,905
    113
    Ratings:
    +8,825 / 333 / -5
    Are your parents elderly? The likelihood of this causing issues is greatly increased if they are.
     
  3. KnappShack

    KnappShack Well-Known Member

    May 26, 2008
    9,902
    1,911
    113
    Parts Unknown
    Ratings:
    +9,087 / 302 / -11
    Dt5ySXnX4AEELAH.jpg
     
    • Informative Informative x 5
    • Like Like x 2
  4. Clonefan32

    Clonefan32 Well-Known Member

    Nov 19, 2008
    14,261
    1,905
    113
    Ratings:
    +8,825 / 333 / -5
    This pretty much nails it. If not done correctly you could have huge issues with imputed interest, Title 19 lookbacks (if elderly), gift tax, potential tax basis issues, etc.
     
  5. isufbcurt

    isufbcurt Well-Known Member

    Apr 21, 2006
    16,710
    3,746
    113
    Male
    CPA
    Newton
    Ratings:
    +18,573 / 843 / -12
    My posts were in jest. Sorry for the sarcasm.

    As far as gifting strategies what I posted regarding that was a real option, but my honest and real opinion regarding gifting is the chances of anyone knowing you gifted or were gifted something over the annual limits are very very slim.
     
    • Agree Agree x 1
  6. jmb

    jmb Well-Known Member

    Apr 12, 2006
    13,087
    944
    113
    Ratings:
    +3,986 / 213 / -5
    #26 jmb, Dec 10, 2018
    Last edited: Dec 10, 2018
    Agreed. There is a risk spectrum and I concur but also threw out more for those that are down with "the detail" while not getting to specific. Good info btw.
     
    • Winner Winner x 1
  7. jmb

    jmb Well-Known Member

    Apr 12, 2006
    13,087
    944
    113
    Ratings:
    +3,986 / 213 / -5
    The gift tax issue has become fairly de minimis risk but still out there. Basis is a great point. I think Curt's point about a viable gifting strategy over a number of years(if applicable) is reasonable. I think the broader point is good planning now will make a huge impact down the road.
     
  8. CascadeClone

    CascadeClone Well-Known Member

    Oct 24, 2009
    3,259
    478
    83
    Ratings:
    +2,001 / 64 / -0
    Similar. Uncle bought a chunk of pasture/farmland (not even a very large one) when grandma passed. 8 siblings. They tried to settle on a fair price which included a small family discount. Well, one uncle thought there should be no discount. The buying uncle was offended for being treated like some guy off the street.

    He got it bought and got the discount (like 5 or 10% vs FMV, it was maybe $20k tops) but those two didn't talk for a while and even now (10 years later) it's a little awkward. Everybody else is OK though.
     
  9. danielyp29

    danielyp29 Active Member

    Jan 3, 2011
    664
    139
    43
    Ames
    Ratings:
    +425 / 10 / -0
    not an only child, my mom's been telling just about everyone (my siblings, friends, other family) of this potentially happening. they've all responded with some sort of a "oh, cool!" type of a response. None of my siblings seem remotely interested the house or even necessarily settling in the area so we're not fighting over the house that I'm aware of.
    2. my dad's away for decent amount of the time, so they've been considering going to a townhouse/condo to cut down with a lot of the maintenance that my mom would have to deal with. they're not elderly, but are planning on retiring in the next 5 ish years.
    3. If we decide to go through with this, we'll find a lawyer/accountant to hash out the details of the sale, and do all of the normal stuff like get it inspected and make sure things ok. Having grown up in the house, I'm pretty well aware of how things were taken care of, weird issues with the house, etc.
     
    • Informative Informative x 1
  10. jmb

    jmb Well-Known Member

    Apr 12, 2006
    13,087
    944
    113
    Ratings:
    +3,986 / 213 / -5
    This is why having a well crafted valuation methodology documented is incredibly valuable. It is also helpful to have a funding mechanism as many folks want out NOW and the cash isn't there.
     
  11. capitalcityguy

    capitalcityguy Well-Known Member

    Jun 14, 2007
    8,251
    500
    113
    Male
    Des Moines
    Ratings:
    +2,003 / 178 / -10
    If your folks are in need of a stream of income, maybe consider doing a reverse mortgage with them? I think you can even bypass the middleman and set this up directly with them. I've only done some casual reading about this, but might be worth at least investigating.


    https://www.kiplinger.com/article/retirement/T040-C000-S004-all-in-the-family-reverse-mortgages.html
     
    • Like Like x 1
  12. dirtyninety

    dirtyninety Well-Known Member

    Oct 6, 2012
    6,075
    613
    113
    Ratings:
    +2,719 / 195 / -24
    Those are hair pieces....just fyi
     
    • Funny Funny x 1
  13. dirtyninety

    dirtyninety Well-Known Member

    Oct 6, 2012
    6,075
    613
    113
    Ratings:
    +2,719 / 195 / -24
    What??? Mars will soon be open for colonizing and there will be plenty of land. That and the thunderstorms in South America really have Argentine and Brazilian farmland prices down.
     
    • Informative Informative x 1
  14. BoxsterCy

    BoxsterCy Well-Known Member
    SuperFanatic

    Sep 14, 2009
    29,320
    8,373
    113
    Living the Dream
    Minnesota
    Ratings:
    +20,987 / 421 / -1
    You believe in the estate tax fairy? :eek:
     
    • Like Like x 1
  15. Sparkplug

    Sparkplug Well-Known Member
    SuperFanatic

    Oct 9, 2008
    2,126
    337
    83
    Farmer
    Central Iowa
    Ratings:
    +1,166 / 26 / -0
    Dad gifted my husband and myself some acres to build a house

    He passed away the next year. The estate had to pay some additional tax for my husband’s part.

    The estate paid because it was written in the will that the estate would pay all taxes
     
  16. madguy30

    madguy30 Well-Known Member

    Nov 15, 2011
    19,448
    3,085
    113
    Ratings:
    +15,956 / 480 / -12
    Searched this out of curiosity...this is actually just found out!
     
  17. buf87

    buf87 Well-Known Member

    Dec 15, 2010
    8,031
    2,527
    113
    Male
    Farmer
    Iowa
    Ratings:
    +4,512 / 59 / -2
    Just do everything by the book. Loans, transfer of deed, etc. Then make sure family understands it is your house, not theirs. Had my sisters go through our house (we bought the family farm) after we remodeled it when we were out of town & never asked
     
  18. buf87

    buf87 Well-Known Member

    Dec 15, 2010
    8,031
    2,527
    113
    Male
    Farmer
    Iowa
    Ratings:
    +4,512 / 59 / -2
    On an additional note, I don’t regret buying the home place. My dad still thinks he owns it. We own it free & clear. And yes mom & dad left a lot of crap in the house
     
  19. mtowncyclone13

    mtowncyclone13 Well-Known Member

    Oct 10, 2012
    19,508
    2,007
    113
    grundy center
    Ratings:
    +8,699 / 525 / -14
    I don't understand all the sibling hate. Are all your relationships that bad?

    If he gets a $50k "market discount" his siblings can get an extra $50k and it's even. No harm, no foul.
     
    • Agree Agree x 1
  20. CycloneErik

    CycloneErik Well-Known Member

    Jan 31, 2008
    88,356
    7,819
    113
    Grad Student
    Jamerica
    Ratings:
    +27,320 / 954 / -17
    • Funny Funny x 1

Share This Page