buying house from parents

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jmb

Well-Known Member
Apr 12, 2006
14,364
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Don't tell them it's none of their business.
(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.
 
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Clonefan32

Well-Known Member
Nov 19, 2008
15,915
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Are your parents elderly? The likelihood of this causing issues is greatly increased if they are.
 

Clonefan32

Well-Known Member
Nov 19, 2008
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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 below market rates 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 some instances where 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.
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.
 

isufbcurt

Well-Known Member
Apr 21, 2006
17,582
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Newton
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 below market rates 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 some instances where 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.
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.
 
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jmb

Well-Known Member
Apr 12, 2006
14,364
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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.
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.
 
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jmb

Well-Known Member
Apr 12, 2006
14,364
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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.
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.
 

CascadeClone

Well-Known Member
Oct 24, 2009
3,592
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Same goes for farmland. Had a cousin that is the only farmer left in the family buy out all of my grandparents land. One of our uncles got mad because he felt the price was too low.
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.
 

danielyp29

Active Member
Jan 3, 2011
678
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Ames
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.
 
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jmb

Well-Known Member
Apr 12, 2006
14,364
4,355
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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.
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.
 

capitalcityguy

Well-Known Member
Jun 14, 2007
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Des Moines
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.

But a growing number of seniors are bypassing the government's program in favor of a cheaper, more flexible option: An intra-family reverse mortgage. With this type of loan, one or more of your adult children or other relatives play the role of lender.

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

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Oct 6, 2012
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Farmland always sells too cheap. Every acre is worth 15k/acre. Doesn’t matter if it floods or burns up 8/10 years.
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.
 
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Sparkplug

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Oct 9, 2008
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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
 

buf87

Well-Known Member
Dec 15, 2010
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Iowa
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
 

buf87

Well-Known Member
Dec 15, 2010
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Iowa
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
 

mtowncyclone13

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Oct 10, 2012
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grundy center
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.
 
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CycloneErik

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Jan 31, 2008
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rememberingdoria.wordpress.com
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