Transfer of Property to Parents

Comments(3)

• 
  26th May, 2003

  Quote:
  On 2003-05-26 01:07, LordDragonfly wrote:
  When transfer of property (house) to parents are being considered, what are the tax law implications that will be expected?
  
  Also, can I apply for a home mortgage on my parents behalf and pay for it? How would tax laws be applied in such case?
  
  All comments are appreciated!
  
  
  Two main issues that you will have to address are: (1) whether the transfer is for consideration or by gift (such that gift taxes may apply) and (2) the deductibility of interest on property you do not own.
  
  The first issue is easy to deal with if you have not used up your one-time unified credit of $650,000 (making the transfer gift tax free if no consideration or less than FMV was given), or you can structure the gift over a number of years so that you can gift the property gift-tax free by using your $11,000 per year gift exclusion.
  
  With the second issue, the tax code says only the beneficial owner of the property is entitled to take any tax deductions for interest. If your parents are on title and also are considered the beneficial owners, only they can get the tax deduction even if you pay the interest (because the IRS will deem each mortgage payment to be a gift to your parents who then pay the mortgage payment). So, you have to remain on owner of the property to get an interest deduction.
  
  It may make more sense for you to own the property and hold the property in trust, giving your parents a life estate in the property. If you do that, you might be able to claim at least some of the mortgage interest as a deduction on your tax return.
  
  Hope that helps,
  
  Taxjunkie

• 
  LordDragonfly26th May, 2003

  Dear TaxJunkie:
  
  Thanks you for your prompt and most insightful advise to my recently posted question!
  
  I have one additional question:
  
  If I am to set up a trust on such property as you suggested, and, God forbid, I get involved in a divorce, how can I anticipate this property to be affected by divorce laws when it comes to division of estates? What I am asking is there a way of setting up sort of a "safety-net" where this estate, which I have intended to be given to them, be free and "protected" of such potential life event?
  
  I am sure that a legal councel is in order for this regard, but I was wondering if you could comment on this issue.
  
  Thanks again!

• 
  4th June, 2003

  Your right, talk with your attorney about these issues!
  
  But in a nutshell, if the property is in your name and has not been disclaimed by your spouse .. and you get divorced, the court will divide the equity you have in the property with your spouse. Therefore, if that is an issue to you, you should talk to your attorney about an antenuptial agreement whereby your spouse disclaims all rights to the property.
  
  Hope that helps,
  
  Taxjunkie