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  1. #1
    Join Date
    Oct 2016
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    Default Tax Consequences of Transferring a Home to an Adult Child

    My question involves real estate located in the State of: Michigan
    The house I live in is in my dads name. When I was getting divorced I didn't want my ex to have any rights to it. The plan was to switch deed to my name when divorce was final and I would take out mortgage in my name. That was 3 years ago. My fathers financial advisor has been telling my dad that he will have to pay thousands to get it transferred to my name. I really don't know anything about this, so I didn't really look into it. I pay everything for the house. Insurance, renters insurance, taxes, repairs and about 20k in updates/remodeling. It costs me more money to have house in my Dads name. I feel like my dads advisor is a little shady and my dad is getting older and becoming more naive. I asked around and found out we can add my name to deed for $9. I have to be on deed for 6 months then can take dads name off. Just wondering if switching deed to my name will cost my dad anything and why his advisor wouldn't want him to do it. Obviously my dad helped me out in a tough spot and I don't want to mess with his finances, but this was just suppose to be for a few months... Don't know what to do!😩

  2. #2
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    Jul 2010
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    Default Re: Costs and Tax Implications for Seller

    If your dad is getting "more naive", that implies potential competency issues. I'd consult a local real estate lawyer on the proper process because you don't want to mess this up.

    Given that you did this to screw your ex in the divorce, I'd say maybe it's a little bit of karma?

  3. #3
    Join Date
    Mar 2013
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    18,340

    Default Re: Costs and Tax Implications for Seller

    I hope you understand that your Dad OWNS the house and, from a legal standpoint, every nickel that it costs you to live there is RENT.

    "Switching" the ownership to you is the equivalent of a SALE of the property and might generate taxes and expenses for a variety of reasons.

    It's not as simple as recording a deed for $9.

    I suggest that you AND your Dad go visit this financial advisor personally and have him spell out exactly why he thinks it will cost your Dad thousands of dollars which, if true, can be solved by you reimbursing your Dad for any costs.

  4. #4
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    Sep 2010
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    Default Re: Costs and Tax Implications for Seller

    You say you are taking out a mortgage? Does that mean that you are giving money to your father or you are just going to refinance a mortgage that is already in his name?
    Generally, if he has equity in the property, he's usually ill-advised to just give it away while he is still living. The cost to transfer the house is minimal, but it's an irrevocable decision that has tax issues for the both of you. First off, if it is a sale rather than an outright gift, he will indeed be subject to capital gains tax (even if he has no equity in the house), though he might qualify for an exemption if he is using the house as a principal residence. If it is a gift, then he'll need to file a gift tax return, though no tax is probably owned. However, when you receive property as a gift, you take over his (presumably low) basis, which means you can get quite a tax wallop when you sell.

    You need to explain why your father is doing this and what the motiviation is.

  5. #5
    Join Date
    Oct 2006
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    Default Re: Costs and Tax Implications for Seller

    Quote Quoting flyingron
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    You say you are taking out a mortgage? Does that mean that you are giving money to your father or you are just going to refinance a mortgage that is already in his name?
    Generally, if he has equity in the property, he's usually ill-advised to just give it away while he is still living. The cost to transfer the house is minimal, but it's an irrevocable decision that has tax issues for the both of you. First off, if it is a sale rather than an outright gift, he will indeed be subject to capital gains tax (even if he has no equity in the house), though he might qualify for an exemption if he is using the house as a principal residence. If it is a gift, then he'll need to file a gift tax return, though no tax is probably owned. However, when you receive property as a gift, you take over his (presumably low) basis, which means you can get quite a tax wallop when you sell.

    You need to explain why your father is doing this and what the motiviation is.
    I do not see how there could be a capital gain. She has been paying the mortgage all along so one would assume that he will be selling the house to her for the balance due on the mortgage.

  6. #6
    Join Date
    Oct 2016
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    6

    Default Re: Costs and Tax Implications for Seller

    Yes, that's what I'm wondering.i want to get mortgage in my name and transfer deed. I've heard so many different things. Quick deed claim where I add my name then after 6 months take dads name off. First I've heard about transfer tax. Also heard if you don't profit over 500k there isn't a tax? Like I said I have no idea, just doing some research to get an idea of what this all involves! After what I've heard I think we both need to go to real estate lawyer together and I pay whatever fees/taxes that my dad would be subject to? My Dad and I are on the same page. He wants the house in my name, but his advisor told him I would have to pay him 15k to do that! If that's the case we would just leave it in dads name! The balance on mortgage could only be about 110k now...

    yeah, your probably right. I was scared, difficult time and I wasn't thinking clearly at the time. Don't make my mistake! Ugh!

  7. #7
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    Oct 2006
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    Default Re: Costs and Tax Implications for Seller

    Quote Quoting Ginalynn
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    Yes, that's what I'm wondering.i want to get mortgage in my name and transfer deed. I've heard so many different things. Quick deed claim where I add my name then after 6 months take dads name off. First I've heard about transfer tax. Also heard if you don't profit over 500k there isn't a tax? Like I said I have no idea, just doing some research to get an idea of what this all involves! After what I've heard I think we both need to go to real estate lawyer together and I pay whatever fees/taxes that my dad would be subject to? My Dad and I are on the same page. He wants the house in my name, but his advisor told him I would have to pay him 15k to do that! If that's the case we would just leave it in dads name! The balance on mortgage could only be about 110k now...

    yeah, your probably right. I was scared, difficult time and I wasn't thinking clearly at the time. Don't make my mistake! Ugh!
    The odds of this costing dad 15k are seriously slim to none. He would only have a capital gain if he sold the house to you for more than was originally paid for it...and after closing costs and transfer tax even if he sold it to you for a bit more than was originally paid for it his net sales proceeds are unlikely to be enough to create a capital gain. However, he will have to recapture depreciation. I also sincerely doubt that he has all that much depreciation to recapture since its only been three years.

    Lets say that you originally paid 200k for the house. He sells the house to you for 200k giving you credit for the down payment that you made and the principal payments that you made over the past three years, and that takes the mortgage down to the 110k that you mentioned. That is the amount you will have to finance.

    His basis in the house is 200k plus the cost of any major improvements that he made, say 220k He still sells it to you for 200k because you effectively paid for everything. So his basis is 220k, he sells the home for 200k, has a capital loss, not capital gain, of 20k.

    Now, he will have taken depreciation over those three years. It would be straight line with a life of 27.5 years. That equals 21818.00 in depreciation recapture which will be offset by the 20k capital loss, leaving a remaining amount of 1818.00 to recapture at ordinary income tax rates.

    Now, this is just an example. However, if you get yourself a consult with a tax professional with the real numbers in hand the tax professional can give you a very good idea of just how much tax might end up being owed by your father. I honestly doubt it will be much at all. The only way it could be as high as 15k is if he sold it to you for considerably more than was originally paid for it.

  8. #8
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    Sep 2010
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    Default Re: Costs and Tax Implications for Seller

    Quote Quoting llworking
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    I do not see how there could be a capital gain. She has been paying the mortgage all along so one would assume that he will be selling the house to her for the balance due on the mortgage.
    The property was a rental. There is DEPRECIATION RECAPTURE here even if they didn't actually take the depreciation deduction (though it sounds like from what the father said, there is).

  9. #9
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    Oct 2014
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    Default Re: Tax Consequences of Transferring a Home to an Adult Child

    His advisor is looking out for your father’s interests, and right now your father owns a home and looking at it strictly from a financial perspective it isn’t in father’s interest to give the home back to you. There’s nothing shady about the advisor telling him that. Indeed, if I were his lawyer I’d have to tell him the same thing. When you give your home to someone else like this to try to dodge creditors or screw an ex in a divorce you run the risk that the person you give it to won’t give it back.

    Michigan imposes a deed transfer tax on most transfers of real estate, whether by sale or by gift. If your father transfers that property back to you, then there may be a transfer tax to pay which is based on the value of the property transferred. If the home was worth $100,000, that tax is $860. So yes, it might indeed cost a thousand or more dollars in transfer tax to do this. It would also be a gift for which your father would need to file a federal gift tax return.

  10. #10
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    Default Re: Tax Consequences of Transferring a Home to an Adult Child

    Quote Quoting Taxing Matters
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    His advisor is looking out for your father’s interests, and right now your father owns a home and looking at it strictly from a financial perspective it isn’t in father’s interest to give the home back to you. There’s nothing shady about the advisor telling him that. Indeed, if I were his lawyer I’d have to tell him the same thing. When you give your home to someone else like this to try to dodge creditors or screw an ex in a divorce you run the risk that the person you give it to won’t give it back.

    Michigan imposes a deed transfer tax on most transfers of real estate, whether by sale or by gift. If your father transfers that property back to you, then there may be a transfer tax to pay which is based on the value of the property transferred. If the home was worth $100,000, that tax is $860. So yes, it might indeed cost a thousand or more dollars in transfer tax to do this. It would also be a gift for which your father would need to file a federal gift tax return.
    I understand the transfer tax but if she is purchasing the home from him by refinancing the mortgage then there would be no gift tax return. There would be the transfer tax but she could pay that for him.

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