Any tax experts here?

[muttmeister]

I am working on my finances, trying to get all of my credit card bills and other obligations paid off and then I plan to move (to Omaha where most of my friends live).

I live in a small town (less than 200 people) and property values are low and houses do not sell. I recently had my house appraised and it is supposedly worth $31,000 (in a larger place it would be worth over 100,000) but I would have a hard time finding a buyer.

difficult child 2 wants my house but has no money and no credit. He does get a check from his income tax with earned income credit each year for over 6000. I told him that if he gives me 5000 from that per year for 6 years, he can have the house. It will take several years before I'm ready to move. It seems like a soulution for me because I can get the house sold and get my money. It seems like a solution for him because he can get the house he wants at a price he can pay and he won't have to pay any interest.

My question concerns what to do with the money he gives me yearly. What I would like to do is put it in a savings account and save it till I'm ready to move. At that point we'll do the transfer and put the house in his name. I'll use the money for a downpayment on a different house. That way, if the deal falls through or he's divorced or dead or in jail or whatever, I can refund the money he's paid and try to sell the house on the normal market. BUT I know there are all kinds of rules about buying and selling houses and what you can do with the money and how you have to declare it on your taxes, etc. If I do what I plan, am I going to get in trouble with somebody? Or are there some special rules I need to follow? I really can't afford to dig up the money to hire a lawyer right now. Anybody have any knowledge about this kind of a deal?

 

[susiestar]

I wouldn't even know how to begin answering this. If there is a university near you, you might ask someone in the accounting department or you might try calling the IRS and asking them. I know they often can answer surprisingly in-depth questions about taxes. Or see if a local attorney who deals with real estate has a free consult and could give you some ideas of how complex this will be.

Wish I could be more helpful. You do have to remember that every state is different, and the state laws or even local laws could complicate things.

Whatever you do, spell EVERYTHING out in writing ahead of time. EVERYTHING. That way hopefully there won't be any big surprises.

 

[DDD]

I'm afraid I can't be of much help either. One of the first things that came to mind, however, is whether you or he get any government assistance like food stamps. My one and only senior citizen friend has had tough financial times for the past few years. I encouraged her to apply for food stamps. She did and she was turned down because she has five thousand dollars left in her "nest egg". It is the ONLY extra money she has "in case of an emergency" but it prevented her from getting aid. I was sadly surprised.

Sure hope you can get some free professional advice that is right for your State. Fingers crossed. DDD

 

[Josie]

I am not a tax expert, but we just sold our house last year. It does not have to be reported on your federal income tax return unless the gain exceeds $250,000 for a single person. I think you can do it the way you want with no federal tax implications.

ETA: Here is a link to the IRS information about it. Basically, you do have to have been living in the house for 2 of the last 5 years and not sold another house in the last 2 years to qualify for the exemption of the gain. http://www.irs.gov/taxtopics/tc701.html

 

[witzend]

You really need to talk to a tax attorney or a CPA about this. It seems as though a Living Trust or Trust Deed is the right answer, but this is far too complex for us to answer.

 

[DammitJanet]

The one thing that I have heard...and this if from a financial expert...is that you can give your children or your children can give you...up to 14,000 a year and it is tax free. That was one way that this man said you can move money around to keep it in the family and not pay taxes on a slightly larger amount of money than 14,000 but not 100,000's. Well not unless you had many kids! This way a child could give the money back to the parent when they needed it or vice versa.

 

[LittleDudesMom]

You could have your son gift you the money for the next six years (the 5K is not considered income for you and under the amount where your son would have to file a gift return) and then "sell" him the house for the
consideration of $1" in 6 years.

 

[Josie]

I would be concerned that selling the house in 6 years for $1 would be considered a gift since the house is really worth $31,000. That would be over the $14,000 amount for that year. If he is married, you could give him and his spouse up to $14,000 each without paying the gift tax, so as long as you made the official sale when receiving the last $5,000 payment, you would be under that amount. The sale price would be $5,000 and the gift would be $13,000 to son and $13,000 to spouse.

If you wrote up your agreement saying he was making deposits that could be refunded if the deal didn't happen, then applied them to the sale at the time of transfer, that might work. The sale is taking place in a few years and doesn't need to be reported now or when it happens since it is under the amount. The payments made now are not really income because they have to be paid back if the deal falls through.

Maybe you could see if there are any attorneys that do a free consultation and you could run these ideas by them.

 

[LittleDudesMom]

We have sold a number of properties over the years for "consideration of one dollar" but they were all within the family. There are quite a number of things to consider, i.e., if he were to sell the house and it was gifted at a low price, he would be responsible for capital gains on the difference which could be a huge burden so you need to determine a gift income tax basis or whether the gift would qualify for the reassessment rule. There are a bunch of other issues to consider so Hope's suggestion of either a tax or financial advisor before you proceed is a very valid one

. You don't want his annual monies to you to be involved at all because you then could be taxed if the IRS sniffed and thought it was really for future home ownership.

This would definately be an issue for the professionals.

What was the latest assessment number? If it's going to be several years is it worth waiting to make a decision or would you be using the annual money from him to pay bills and not put in savings? I also assume you own the home outright?

Sharon