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skhoo368, Home Buyer in San Jose, CA

Title change question. Adding parent to title. Possible tax implications or is it even doable?

Asked by skhoo368, San Jose, CA Mon Dec 20, 2010

The background of my question is, my parents help me put in about 50% downpayment for the house I bought, and the rest of the value is being financed through home loan by me. At the point of purchase, I did not put my parents' name as joint tenant in the title. Technically, they should own 50% of the house already, because they paid for it.
If I file a grant deed now to transfer 50% interest of the house to them, does it have to be classified as a "gift"?Which may incur gift tax. Or can I transfer it to them "in exchange" for the downpayment they put on the house already?

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Answers

7
Mitchell:
Indeed I did not take into consideration the non-tax implications. I was given the amount as a gift stated in a gift letter. The loan was applied for about 8 mths ago. I'm guessing that the cleanest way to do this, as suggested by others as well, is to do it through re-financing. But if I structure the transfer in the way you suggested, do I still violate that loan agreement?

I should've added their name to title in the beginning, but was under the impression it could be done at any time. Didn't know it'll open up so many issues now.
0 votes Thank Flag Link Tue Dec 21, 2010
Do talk with your tax adviser for any tax consequences. You may also want to discuss legal issues with a Real Estate attorney.

Let me point out that a Grant Deed most likely is not what you are talking about. After getting an understanding of your tax and legal options there are ways to put title in both names. One would be to refinance and put both names on title. Refinancing though will take it from non-recourse to recourse loan. You can give them a recorded Trust Deed in which they have a financial interest along with a promissory note detailing the financial obligation. You can put the property in a Family Trust in which it details the disposition as well.

All these are different and your situation and goal is unique, talk with a trusted adviser who will have all the details of your finances and what you and your parents are intending to accomplish.
Web Reference: http://terrivellios.com
0 votes Thank Flag Link Tue Dec 21, 2010
Best course of action is to consult your tax consultant or CPA.
0 votes Thank Flag Link Mon Dec 20, 2010
Dear Skhoo368:
The question is not just a tax question. Did your parents give you a letter stating their 50% of the price of the house you received was a gift from them? How long ago was the loan? You don't want it to look like the gift letter was actually not true and was written just for getting the loan when in fact they were lending you the money or you were acting as a straw buyer for them. This could cause you problems with your lender and possibly authorities they may seek assistance from.

That said, as far as the tax questions, you are better off asking an Enrolled Agent or CPA who does your taxes.

As far as do your parents need to "buy" back the house with money in order for the house to be legally transferred to your parents, the answer is: you can transfer property for any reason in California, including in exchange for "Love and affection", which your parents have already demonstrated. No money needs to change hands in order to transfer property. So the answer generally to your question is It is doable, but you should consult your tax adviser. Incidentally, the taxes on gifts don't start till over a certain limit, which I think is now over $12,000 per person. Your parents are 2 people, so that would be $24,000 total transferred. You can gift them up to the limit in value of the house, adding them in value of that amount as tenants in common without tax implications several years in a row until they are shown to have 50% of the value of the house. Again, I strongly urge you to talk to a tax professional to get the details of how to structure the transaction.

If re-financing now would lower your interest rate, I suggest the easiest of all ways would be to add them on title when you re-finance. This eliminates any issues reference in my first paragraph. I happen to work as a loan officer at a bank, so feel free to give me a call at 408-639-0211 if you want to pursue this further.
Mitchell Pearce, 408-639-0211
0 votes Thank Flag Link Mon Dec 20, 2010
Dear Skhoo368:
The question is not just a tax question. Did your parents give you a letter stating their 50% of the price of the house you received was a gift from them? How long ago was the loan? You don't want it to look like the gift letter was actually not true and was written just for getting the loan when in fact they were lending you the money or you were acting as a straw buyer for them. This could cause you problems with your lender and possibly authorities they may seek assistance from.

That said, as far as the tax questions, you are better off asking an Enrolled Agent or CPA who does your taxes.

As far as do your parents need to "buy" back the house with money in order for the house to be legally transferred to your parents, the answer is: you can transfer property for any reason in California, including in exchange for "Love and affection", which your parents have already demonstrated. No money needs to change hands in order to transfer property. So the answer generally to your question is It is doable, but you should consult your tax adviser. Incidentally, the taxes on gifts don't start till over a certain limit, which I think is now over $12,000 per person. Your parents are 2 people, so that would be $24,000 total transferred. You can gift them up to the limit in value of the house, adding them in value of that amount as tenants in common without tax implications several years in a row until they are shown to have 50% of the value of the house. Again, I strongly urge you to talk to a tax professional to get the details of how to structure the transaction.

If re-financing now would lower your interest rate, I suggest the easiest of all ways would be to add them on title when you re-finance. This eliminates any issues reference in my first paragraph. I happen to work as a loan officer at a bank, so feel free to give me a call at 408-639-0211 if you want to pursue this further.
Mitchell Pearce, 408-639-0211
0 votes Thank Flag Link Mon Dec 20, 2010
Hi skhoo368, 50% of down payment? That amount must meet the maximum gift amount first.

If it meets that number it could be a gift, however there are too many variables to consider to give a tax opinion here.

Realtors can only give a tax opinions not tax advice.

Michael
http://LosGatosHomesandRealEstateBlog.com
0 votes Thank Flag Link Mon Dec 20, 2010
I am not an accountant but when you give someone something, it might have a gift tax involved. I would call your tax person and ask them about gift tax.

Guy Berry
http;//www.guy berry.com/expertwitness
0 votes Thank Flag Link Mon Dec 20, 2010
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