Gift Of Equity - Pay Captial Gains?
My in-laws are selling us a house that they never lived in (rental property) for $71,000. The house appraised at $119,000. We want to "buy" the house for $85,000 and them give us a gift of equity of $17,400. Will they have to pay any taxes on that $17,400 gift?
should if they track the 17K as a gift.
You can gift $10K/person/spouse as I recall.
I believe it's $11,000 now.
So when I bought my house, for less than the seller wanted for it (as any good buyer ought), did they "gift" me equity? She just wanted to sell he house...
the discounted price you paid was basically the FMV.
Whereas my mom giving me the family house, for free would be a gift.
Quote:My in-laws are selling us a house that they never lived in (rental property) for $71,000. The house appraised at $119,000. We want to "buy" the house for $85,000 and them give us a gift of equity of $17,400. Will they have to pay any taxes on that $17,400 gift?
carebear2936,
The answer is no.
Any individual can give any other individual a tax free gift (or gifts) up to a total of $11K per year. A married couple can combine their gifts to an individual for a $22K annual tax free gift.
Since you say that your in-laws (plural) will be selling "us" (you and your spouse, jointly?) the house, the in-laws can give both you and your spouse a combined gift of $44K tax free in a single year.
In summary, the inlaws (plural) will not have any tax consequences from a $17,400 gift to you and your spouse..
[ Edited by NewKidinTown on Date 06/18/2004 ]
If you want change the structure of the cost basis, you could have them gift you full 44 or double that if around the end of the tax year.
If they have a substantial estate, looking how the gift affects the estate tax exemption
In reviewing my earlier response, I overlooked the difference between your purchase price and the FMV. If you are purchasing at $85K, the $34K difference between your price and the FMV is also a gift. If you add this amount to the $17400 gift you are seeking, the total combined gift becomes $51,400.
This gift amount is still subject to the same $11K per year per person gift tax exclusion mentioned previously. Any amounts that exceed $11K per year per person would require your inlaws to file a Gift Tax Return.
In your case, your inlaws would report a combined gift to your and your spouse of $7,400 on their Gift Tax Return. Chances are that no actual tax would be due, but their federal estate tax unified credit would be reduced.