Question:
Recently, my parents purchased a small house for my daughter and myself to live in. (I was unable to get a mortgage because of my low income three years ago.) They are aged 86 and 93. When one of them dies, the other will come live with me. Since they cannot claim homestead exemption on this house because they have their own home (worth twice as much), the taxes will increase on this one. I am not renting the house from them. I pay the mortgage for them and maintain the property. The house cannot be considered a serious investment since it's unlikely to increase much in value because of its age and location. How do they show the acquisition of this property on their income tax return and what can we do to keep the taxes from eating them up?
Answer By William Bronchick:
They can transfer title to you by quitclaim deed, which will make you the owner. If the equity is less than $20,000 and they are both on title, this "gift" of equity is not taxable. Further, the transfer to you will not violate the due on sale provision of the mortgage because you are a "lineal descendent." Once the house is owned by you, a mortgage deduction is permissible, even though you did not originate the loan (you need some sort of written agreement with them under which you promise to be obligated to make the payments).
Disclaimer: The foregoing is not intended to be given as legal, financial or tax advice, but intended for instructional use only. If you require legal, financial or tax advice you should seek the assistance of a qualified professional.
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