I purchased a house less than a year ago fro 280K. Since then it appreciated by about 20K. Also, I put in about 20K of improvements in it.
What's the best way to make the transaction and minimize the tax burden? Should I just "borrow" the money from my mom to pay off the loan, and then file a quitclaim?
Or should I record it as a purchase contract? If so, how much should I sell it for? Can I sell it for 300K and still not have to claim capital gains due to improvements I made? Or should I just sell it for 280K?
You really need to discuss this with an accountant.
Your basis is the price you paid, plus costs you paid on the purchase plus capital improvements. When you sell, your gain is your selling price less sales costs less basis. Even in a private transaction you will have some closing costs. E.G., title insurance you buy for the buyer. If you sell it to her for what you paid plus costs when you bought, plus improvements, plus selling costs you won't have any gain. You will still have paperwork. You need to be able to document the improvements with receipts.
There could be a "gift" aspect to this, too. Perhaps not if it was a recent purchase and only a little appreciation. But if its really worth $400K and you sell it to her for $300K you're giving her $100K and there are tax consequences for that. Again, best to go through the transaction with your accountant.
You should not sell the property for $280,000.
Your basis in the property is $300,000(purchase price of $280,000+20,000 of improvements.)
If you sell it for $280,000 you would have a loss of $20,000 but since you are dealing with a family member; the loss may not be able to be taken on your tax return.
The cheapest way would be to gift the house to your mom. You would still be responsible for closing costs.
If there is still a loan on the property - you may be subject to the due on sale clause.
You may be required to file a gift tax return upon gifting the property to your mom.
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