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kheq · Joined: 30 Sep 2009 Posts: 2 1.49 Dollars($)

I am buying a home that my fiance's mother owns. It is not her primary residence. I am taking a loan out for 110k and she is gifting equity of 27k therefore making the sale price on the loan documents 137k. If she only paid 120k for the house will she have to pay capital gains taxes? IF so how much..

thereishope · Joined: 30 Sep 2009 Posts: 5 1.86 Dollars($)

I'm guessing here, but if the legal sale amount of the property is 137K, regardless of how much money she actually recieved there could be a liability for capital gains.

would make much better sense from here side to simply agree to sell the property for 110K - are you doing it this way to jack up the loan to value ratio?

kheq · Joined: 30 Sep 2009 Posts: 2 1.49 Dollars($)

yes the sale price is increased to show 20% equity in home. that is how the bank wanted it written up. I am only paying $110k because that is the payoff on the existing loan.

jenkin7 · Posted: Wed Sep 30, 2009 11:30 pm Post subject:

Hi kheq,

I believe your fiance's mother will have to pay capital gains taxes if the house is officially sold for $137k. If she bought the house for $120 and now is selling it at $137k, she will earn a profit of $17k and will owe capital gains taxes on this amount.

Posted: Thu Oct 01, 2009 5:14 am Post subject:

would the gift of equity not offset any of the so called profit? she is not profitting off this sale as the difference between the actual sale price and payoff is remaining in the house as equity. I know she will have to report the GOE, but will not pay taxes at this time because she is below the $1 million dollar lifetime limit. I just don't understand how she would be taxed when she isn't realizing any financial gain.

jveenstra · Posted: Thu Oct 01, 2009 9:13 am Post subject: Gift of Equity

Your math is correct in that she does not walk away with any money. However, the sales price is the sales price. She is entitled to $137,000 by the sales price. The fact that she decides to give it away does not change the sales price and she probably has to pay capital gains tax.

This is accounting advice we are addressing. This is a mortgage web site and mortgage people are not authorized to give accounting advice. We can talk about it, however, your 100% coorect answer needs to come from an accountant.

You can read what we mortgage people "believe" to be correct. An answer from an accountant is the only answer you can rely on.

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capital gains and gift of equity