7
Getting Personal
Getting Personal
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You made an error in telling this lady to pay off her daughter's mortgage as a wedding present. She runs the risk that all she will do is free the condo as collateral for her daughter and son-in-law to incur additional debt!
A better strategy would have been to use the right we have to make interest free "gift loans" of up to $100,000 to pay off the debt and replace it with a note owed to the mother. That way, she could assure that the couple could NOT go against her intent and replace the debt. She should provide in her trust and will that the note be inherited by her daughter upon her death.
This accomplishes getting her daughter out of debt and eliminating her payments WITHOUT the potentially upsetting future possibility of her daughter simply taking the gift and using it to re-incur debt on the same asset.
Re paying off daughter's mortgage: You were mostly correct, but slightly misleading: If they give the full allowable gift amount for the mortgage ($13Kx4)any other birthday or wedding presents will put them over the limit, so they should NOT give the max if they care about gift tax (which they may not). Also, you said that staying under the cap "avoids tax liability" Actually there's no "liability" in the sense that you would need to pay tax if you exceed the limit. The excess gift just reduces the amount excluded from estate tax -- so it only applies to people who will die with a taxable estate, which no one can be sure about these days, given Congress. Most people are confused about this, so you should try to be clear.
To answer Barry Webb: The son would not qualify as a first-time homebuyer since he lived in a unit he owned within the last three years; and he wouldn't qualify as a prior owner who lived 5 years in a principal residence.
So he's out of luck.
And THANKS for the segment on regulating tax preparers. I'm an Enrolled Agent, so competition from unlicensed preparers is a big issue. Outright fraud -- like the case you mentioned -- is not that common, but lack of expertise is very common. A few years ago the IRS sent teams with test returns -- one simple, one moderately complex -- to several dozen store-front preparers, and as I remember the results NONE of them got the returns fully correct. (Of course being licensed is no guarantee against making mistakes, given how crazy our tax laws are . . .)
Renting from former partner for about 6 yrs now. She is interested in selling and getting out of it as she is now in KY and no longer going to come back to MA to live. I am not interested in moving from here. She got an appraiser to do his thing. He said house and property worth about 185K, she said she'd sell to me for 155K. I was preapproved for mortgage and began the procss of mortgage application with bank I've been at for 15 or 20 years. They hold my cds and checking accounts. Tried to get it rolling before the end of credit last year but with extension I've now 'til April for the tax credit.
With interest rates on CDs so low, attorney fees, mortgage closing fees, et al against me/us...in addition to Title 5 issues the house would undoubtedly have (add another 5,000-50,000 dollars), I proposed the following and would like to know what my further responsibilities would be from taxes, reporting, forms, and anything else by following such a plan.
I would (and have) removed my 107,000 CD to my checking account in anticipation of avoiding all mortgage process based fees and interest by giving her $97,000 up front for the house (allowing her to take care of some debts she wants to clear) and then 1000/mo for the following 5 years making about a 4ish% gain for her on the remaining 55,000. ie 60,000 over 5 years. Free and clear, no attorney fees or other, no interest to a bank but rather to her, no title 5 septic issues (for either family willing or cash transactions.)
How does this seem to you and how do I do title transfers, tax reporting, etc. thanks, tk
@Jason: I got a pre-approved loan in September 2007 and went looking 2008. During that hiatus, I considered whether home ownership was really worth it for me and could I swing the monthly mortgage payment. I also looked to determine what size/scale/location house my loan amount could get me. After six months and a new job, I started looking seriously. Due to several reasons, I ended up at another bank at a slightly higher loan amount. The pre-approved loan did not appear on my credit report. I do not see any advantage to multiple approvals. The pre-approved loan step gave the real estate broker and the seller a comfort level to my ability to close the deal. The pre-approval loan also allowed me to see how much my monthly payment would be and the other costs (i.e., insurance, taxes) involved in closing on the purchase.
Regarding the tax credit eligibility for the 8K, my son currently owns rental property, purchased two years ago. He lived in the dwelling for the first year and has been renting it for the past 1.5 years. My question is would he be eligible for the tax credit to purchase a new single family dwelling?
