capital gain tax

Guest 0.10 Dollars($)

I buy a singe family house from my uncle for $100,000 which below market rate. I only want to take loan for $80,000. He will actually pay the exist mortage $40,000 and leave him only $40, 000. He is now concerning whether will need to paid any tax. Anybody know the answer?

sara · Posted: Sun Feb 11, 2007 9:21 pm Post subject: RE: paying tax on the sale

Hi Guest,

Welcome to the forums.

Usually when a house is sold, the seller has to pay tax on the capital gains obtained through the sale. But your uncle has sold the house to you at a price below the market rate. Therefore, the transfer of the property title will be regarded as a gift. And, your uncle may have to pay the gift tax on the value of the house. But he can do without tax provided the home value is around $12,000 or less. Otherwise, he needs to come up with the gift tax. Also, there is a lifetime exemption of gift tax till the total property transferred throughout a person's lifetime is worth more than $1 million.

As far as paying off the loan is concerned, it's good that your uncle will clear the debt before the house is sold off to you. He can also get tax deduction benefits on the mortgage interest he is paying. Hopefully by this time he is already getting such benefits.

Thanks,

Sara

Guest 0.10 Dollars($)

I was just curious. my uncle bought the house since 1988, about $80,000. And now if he sell to me for $100, 000. Does that mean he had to paid a capital gain? As far as gift of equity tax, how does it goes? is there any way that he can avoid tax. As I already mention above, I only want to take loan for 80,000.

Caron · Posted: Tue Feb 13, 2007 9:17 pm Post subject: RE: capital gains tax

Hi Guest,

Welcome to our forums.

Your uncle may sell the property at a price below the market rate. But then he has purchased it for $80000. Therefore he will gain through the sale. Hence he will have to pay capital gains tax and no gift tax.

Gift of equity tax will not apply here. It would have applied if the sale price of the property would have been lower than the purchase price.

Your uncle can avoid the capital gains tax provided he qualifies for the exemption limit allowed for capital gains tax payers. For that the property you buy should be your uncle's primary residence which he must have owned and used for 2 years out of 5 years before the sale of the house.

Refer to a previous discussion on Capital gains tax exemption for more details.

Thanks,

Caron.

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