Paying off my parents mortgage?
 

i know that it is a better idea to just make normal payments, but i know that if i do that my parents will routinely try to refuse my money unless they really need it. if i pay it off entirely now, than they will not have the chance to do that.

i realize that i am only allowed to give each of them $11K per year without invoking gift tax.

One of the things we would like to avoid, is me having to pay tax when they die and i recieve the house in their will. What is the best way to avoid this?

Would it be possible for them to sell me the house for the remaining amount of the mortgage? Or that is illegal, tax evasion?

Could they just add my name to the mortgage and let me also own the home?

Could they just move the house over to my name?

What is the best way to do this to avoid taxes?

Re: Paying off my parents mortgage?
 

Just don't pay taxes on anything at any time. I hear the IRS don't even do anything and it's got me this far. $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$.

Re: Paying off my parents mortgage?
 

talk to a tax attorney/whatever

Re: Paying off my parents mortgage?
 

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Would it be possible for them to sell me the house for the remaining amount of the mortgage? Or that is illegal, tax evasion?

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Yes, it's permissible, and much more palatable than paying an inheritance tax. But for solid advice, you could consult an financial planner. All I know is this has come up in my family, and an equity buy-out for the size of the equity was how it was handled.

Re: Paying off my parents mortgage?
 

Any decent financial planner is just going to talk to an estate lawyer he's worked with in the past, so unless you have other issues you'd like to talk to a planner about, cut out the middle man and go straight to the lawyer.

Re: Paying off my parents mortgage?
 

And to cut out everything entirely, the Internet is the Infinite classroom.

Re: Paying off my parents mortgage?
 

First question...how much would their estate be worth when they die?

$11k each, so you can give $22k/year to them. If you are married, then it's $44k. And this number I believe went up last year.

Before doing anything this drastic that could spark tax consequences, I'd speak to a tax attorney or an accountant that KNOWS their stuff. Who knows what other things you have to watch out for that OOT doesn't know.

Re: Paying off my parents mortgage?
 

KKF,

There are ways to structure this so that both you and your parents can win. Talk to either tax attorney or a CPA. Depending upon your particular situation, I can think of a few things that might apply, but you will need to speak with someone who knows state as well as Federal law to make sure everything is properly set-up. Based on the potential savings, spending a couple hundred up front is well worth it.

There are trust vehicles your parents can set up that might work here.

Re: Paying off my parents mortgage?
 

On gifts:

Gift tax rules do not prohibit a donor from making gifts in excess of the annual exclusion ($11,000). Gifts in excess of the exclusion are considered taxable, with the following consequences:

1) Donor is required to file a gift tax return for the year
2) Taxable gifts reduce the donor's $1,000,000 gift tax exclusion (lifetime). Gift tax is only paid once the $1,000,000 exclusion is exhausted.
3) Taxable gifts are included on the estate tax return at death of the donor.

On the house:

When your parents die, estate tax is only paid on their estate if it is in excess of the estate tax exclusion ($1.5 million in 2005). If their estate is under that, no worries.

Their house will have appreciated from the time they bought it. If you inherit their house, you will receive a "step-up" in the basis of their house to the current fair market value. So, if they bought their house for $100,000 and it's worth $500,000 when you inherit it, your basis in the house is $500,000 (you get a free $400,000 capital gain). Much better than them selling you the house, IMO.

Re: Paying off my parents mortgage?
 

The house is only worth $150K right now if they sold it. I think there is $35Kish left on the mortgage.

Re: Paying off my parents mortgage?
 

[ QUOTE ]
The house is only worth $150K right now if they sold it. I think there is $35Kish left on the mortgage.

[/ QUOTE ]are you sure you'll be dealing with an estate tax? If they are living in a $150k house, I think they might not have a big enough estate to tax. Assuming you're talking about the US estate tax...
"The applicable exclusion amount increases to $2,000,000 for decedents dying in the years 2006, 2007 and 2008. The amount increases to $3,500,000 for 2009"

Re: Paying off my parents mortgage?
 

Pay off the mortgage. You will have to file a gift tax form (I forget what it is), that states you went over $11k by whatever. Since your parents' estate comes no where near the $1.5 or $2M or whatever it might be when they die, you owe no estate taxes.

Re: Paying off my parents mortgage?
 

Why not buy the mortgage from the bank? Then your parents owe you 35K. While they live they don't pay anything on the loan but when they die, you get your 35K back. Then you only get the remaining 115K as inheritance.

I don't know if this is feasible. I know nothing about US laws. I don't live there.

Re: Paying off my parents mortgage?
 

I don't know what your particular situation is, but I did something similar with my parents. They had a small mortgage on the house I was living in (I was paying the property tax every year as "rent") and had taken a home equity loan to build the place they were living in.

We consolidated both loans, refinanced, and put me on the title for the house. I have been paying that loan down ever since, leaving my parents to pay some amount of property tax every year on their place. It's worked out pretty well...I've been getting a tax break, and my folks have been taking in more than they spend between retirement distributions and my dad's pension.

Re: Paying off my parents mortgage?
 

Go see an attorney who specializes in Trusts and Estates. The advice you receive here can be suspect. For example, in 2006 11K was increased to 12k.

A trust can be set up to transfer ownership to you and/or your siblings. It has to exists for some number of years (5?) to get all the tax benefits.

Also, there is something about reducing your parents net worth below $???? for them to receive the maximum health benefits. If above $???? they have to pay some expenses out of pocket.

There is a lot more to this and the laws often change. So, do yourself a favor and find a good trust and estates attorney.

Re: Paying off my parents mortgage?
 

If you're worried about the yearly gift exclusion, why not just pay the max this year & then pay the rest in January.

Re: Paying off my parents mortgage?
 

Didn't we do this a year ago?

Re: Paying off my parents mortgage?
 

Disclaimer: I am a lawyer but know nothing about trusts and estates, take my advice at your own risk, blah blah blah go see somebody who actually practices this because it's so ridiculously boring

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If you're worried about the yearly gift exclusion, why not just pay the max this year & then pay the rest in January.

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Since the total amount involved is 35K, this is probably the best way to go about it. I'd tell you to talk to a couple of lawyers if this was for 500K, but since the whole thing fits into three gift exceptions, it isn't really worth it. I am sure that there are ways to structure this transaction that makes both you and your parents some kind of profit over and above that, but a)I know nothing about them and b)my hunch is that the lawyer fees would eat it.

To be sure they cash them all, send them two checks in mid December and one in early January so they don't have too much time to change their minds.

Re: Paying off my parents mortgage?
 

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The house is only worth $150K right now if they sold it. I think there is $35Kish left on the mortgage.

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There is no estate tax when they die on a house worth $150K unless they also have a couple of million stashed away for you as well -- and if they have a couple of million stashed away for you, they certainly don't need you to pay their mortgage off for them.

If you are over 18 and still living at home, I would suggest that you tell them that you want to pay your own way, i.e., you want to pay rent (and for your share of the food). You can then give them money every month in a way that many parents will accept and actual think is responsible. This may have some tax implications for them, but only if they claim it as income (probably unnecessary).

Re: Paying off my parents mortgage?
 

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Didn't we do this a year ago?

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Sure enough....

Re: Paying off my parents mortgage?
 

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Didn't we do this a year ago?

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Sure enough....

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conclusion in that thread was to just make payments. that is why i remade this thread because i want to pay it off for reason stated.

Re: Paying off my parents mortgage?
 

Smart people, humor me for a minute...

Why is it considered a gift if a person simply makes a payment, in this case 'in full', for another person?

He is not technically giving someone a gift that they then decide to make a payment with. He is making a payment on someone elses account at an institution.

Why is this a tax issue?

Is this for the sole purpose of KKF being able to write the dollars off of his income taxes? Or is it for his parents to avoid claiming the money as income?

Re: Paying off my parents mortgage?
 

However u do it it's a heck of a nice thing to do.

Re: Paying off my parents mortgage?
 

By-Tor,

For the same reason you can't just buy a brand new car and then give it to a college athlete, nor can you pay Reggie Bush's rent or car payments or anything. Those things all have significant monetary value, and that value is being transferred from one party (you) to another (them).

Re: Paying off my parents mortgage?
 

What about buying out the mortgage from the bank? and then gifting the house to them bit by bit? I dont know if or how this would work though.

Re: Paying off my parents mortgage?
 

No idea if you could buy the loan and then just forgive $11k worth of payments a year, or something like that. That's why its worth a couple hundred bucks to talk to a lawyer for a few hours. They're informed, we're not.

Re: Paying off my parents mortgage?
 

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The house is only worth $150K right now if they sold it. I think there is $35Kish left on the mortgage.

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Same thing I told you last time...11k to each of your parents on 12/31 and on 1/1. Unless your parents have a ton of money, there will be no Federal Estate taxes when they die.

Re: Paying off my parents mortgage?
 

Currently the estate tax exemption is $2m and is increasing. I would recommend you gift $12,000 (the amount went up) before 12/31 and again soon after. The remaining balance can be paid off in 2008. This way you avoid filing a gift tax return.

DO NOT buy the house from them. When they pass away you (or whoever inherits the property) will get a stepped up basis on the property. This means that your basis for capital gains will be the market value when they pass away instead of their purchase price. If you buy it from them you will not get this step-up in basis unless you pay them full value for the house.

Re: Paying off my parents mortgage?
 

I don't have anything constructive to add but I wanted to post to just tell you that you rock.

Much props and respect for the kindness to the parentals.

Serious up.

Re: Paying off my parents mortgage?
 

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The house is only worth $150K right now if they sold it. I think there is $35Kish left on the mortgage.

This is absolutely correct advice that you should follow.

Re: Paying off my parents mortgage?
 

What about when your parents get older, if they were to go into a nursing home or have a ton of medical bills, in this scenerio, wouldnt it be better to have the home in your name from now? What are the disadvantages of having the home in your name from now?

Re: Paying off my parents mortgage?
 

[ QUOTE ]
What about when your parents get older, if they were to go into a nursing home or have a ton of medical bills, in this scenerio, wouldnt it be better to have the home in your name from now? What are the disadvantages of having the home in your name from now?

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Re: Paying off my parents mortgage?
 

KKF,

I think you are a nice son.