My first seller financing (And I didn't even know it)

[Roy So]

Need a bit of advice on this... Here's the situation.

About 5 years ago I took over the mortgage payment for my mother's house ( I don't live there, currently renting an apartment with my wife). 

I never realized this was basically a seller financed deal until BP.

The house is on Long Island, and worth probably about $450k currently.
At the time I took over the payments there was about $200k still due for the mortgage. (now the balance on the mortgage is about $150k), payments are about $2,000 a month including taxes/insurance. I also pay her utilities.

The thought was that my mother (who's not working) will live in the house as long as she needs to and the house will be mine after that (my mother is 70).
I have 2 older siblings who are not involved in this situation, part of me is afraid there would be some animosity in terms of inheritance one day if we don't sit down and discuss this soon...(when I have the house and they don't).

Plus side: I didn't put anything down, and am just making the payments. My mother doesn't have to stress about payments every month out of her savings.

"Down Side": no income coming in for the (hopefully very long) foreseeable future.

My question... Is there any down side to changing the house deed to my name now? I used to be against that idea before I was on BP, thinking it may come in the way of me getting a mortgage one day for my own home/investment... but now I realize that as long as the mortgage for this house is not on my name then I should be fine since I'm not officially taking on the debt? does that sound right?

What would be the costs associated with changing the deed to my name? is it even doable?

The rate she has is about 5.8% (this was a no-doc mortgage) but I feel like I should be happy to have that rate considering it's not in my name.

I may be wrong about a lot here, please let me know.

Thanks in advance.

Roy

[Kris Martinez]

Hi Roy,

My opinions: First, if you are providing the care for your mother, she could qualify as your dependent, which has favorable tax implications for you. 

Second, your tax basis in the property when your mother passes will automatically be stepped up to the fair market value ($450K at this moment). You would be taxed on capital gains above this amount if you elected to sell it. Also, if there is an estate, the estate tax due AND estate income tax (federal and state) on the gross estate amount - including the fair market value of this home - would be taxed. There are generous credits and deductions that most likely will reduce the federal tax liability; however, the tax is upwards of 40% and estate tax could be different (more harsh) for your state. Although your siblings are not involved with this property, legally they could possibly make a claim for it through the estate/inheritance.

In addition to what the others have mentioned, I would try to see if your mother can sell (how could you refinance a loan that is not in your name, unless the lender allows you to assume it) it to you. It is best to plan these things now. Since it is her owner occupied residence she can exclude capital gains up to $250K if single. Please seek out a CPA or attorney to help you through this. 

Hope this helps.