What tax strategies should we use to minimize taxes that would occur from selling the home to our son?
Now, let’s turn to the question about your son buying the property. Can he qualify for a mortgage and purchase the home for the appraised amount of $220,000? If so, then you’ll likely avoid taxes from the trust side. This is especially true if the date of your mother-in-law’s death was within the last year or you have documentation that shows that the home had a value of $220,000 at the time of her death.
Now, let’s flip the script: Let’s say your son can’t qualify and you decide to rent the property to him. Then, the property becomes an investment. Your wife and her brother will enjoy the tax benefits of depreciation, have the ability to deduct any real estate taxes, deduct other expenses and take the rent as income.
You might consider two other options: First, consider allowing your son to buy the home on an installment basis; the second option is to have him pay some money down now and you take back a mortgage. With either of these options, your son would own the home and get the benefits of homeownership. Along the way, your son would make payments to your wife and her brother and gain equity in the home.
One thing that you should explore is whether you or your late in-laws have any income or estate tax issues. Under Federal estate tax laws, we suspect you don’t have anything to worry about if the estate was below the $12,920,000 exemption . Generally, this means that if the deceased had an estate of less than that amount, the estate would have no federal estate taxes to pay. However, some states have a state estate tax or other fees on assets left in an estate.
And, whether you decide to rent or sell the property to your son, you’ll want to hire an attorney to draft up the paperwork. As your wife doesn’t own this property on her own, you will want to document everything, so all beneficiaries can rest assured that you’re handling the situation correctly.
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