Paying off my parents mortgage?

[xxThe_Lebowskixx]

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?

[NoMeansYes_]

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. $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$.

[Reef]

talk to a tax attorney/whatever

[FortunaMaximus]

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

[/ QUOTE ]

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.

[RunDownHouse]

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.

[FortunaMaximus]

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

[punkass]

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.

[4_2_it]

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.

[butters]

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.

[xxThe_Lebowskixx]

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