GIft Of Equity
My brother offered to sell his house to me for 475K. He wants that in his pocket so to speak. He also wants to give me a gift of equity of 20% (95K) . Does the gift of equity reduce the selling price to 380K then. How is it detemined how much equity can be given?
Any info would be greatly appreciated. Thanks! 
any amount can be given. how much can be w/o triggering the gift tax report.
11K/person
and
11k/spouse to person.
so basically 22K.
If the FMV of the house is 475, and gits you the balance, the 380 is the correct basis.
if the FMV is 500, he want 475, then you need to include 500-475 as part of the gift.
I disagree. If the FMV of the property is $475K, then a gift of equity does not reduce the buyer's basis nor the seller's taxable profit.
It would appear in this scenario that the sale price will be $475K, and that the buyer's basis will be $475K. The brother will have to file a Gift Tax Return on the gift amount that exceeds the annual tax free gift exclusion. There might not be any gift tax due, but a return will still have to be filed.
Dear All-
Thanks for you reply. This gift of equity is very confusing. I guess what I'm trying to figureout is that I want to buy the property with 20% down from the gift of equity but can't figure out how the gift of equity is detemined. :-? Please send help.
FMV minus your purchase price is the amount of the equity gift
You would make the sale price 475K and then you would obtain a loan for the 380K with an 80% ltv loan. Check ahead of time which lenders will allow this. I closed one last year like this through Option One. You must be occuping this home for this to work. Another idea would be to have your bro carry a 20% seller second that he forgives a portion of every year. This allows you to obtain an 80% ltv and he gets to not trigger the gift tax because he only forgives what is allowed each year.
So in essence from the buyer's perspective, its a no money down deal, 100% financing, and CYA on the tax issues. Works as long as borrowers credit qualifies for the 100% combined LTV.
You're all so brilliant - thanks!
So it's true than that my brother only gets 380K in his pocket instead of 475K?
Can you tell this is all new to me. First time home buyer and I just can't make it easy. :oops:
Yes it is true that your brother will only get $380K in his pocket, but your original question asked if the gift reduced his "selling" price from $475K to $380K. It does not.
His selling price and your initial cost basis will be $475K.
Start a church!
Seriously I am sure there is a way to move the property to expmpt status to avoid real estate taxes - this concept might not work for a 2MM home, but even if it is commercial, you might be able to get a good attorney to create some unique trust or lease agreement that would save you many times his pay AND keep the property in your family.
A lot safer approach would be to use the property for the production of income. Is this one property or several? Is it residential, commercial, a mixture of both?
Can some or all of the property be leased? If so, would the rental income be sufficient to pay the property taxes?