Tax question on Gift

2 Replies

First post here,

My fiancé owned a home with her ex husband. Her parents needed to take title in order for her to keep the home as she had no income at the time of divorce . Fiancé has made all of the mortgage payments, lived there, kept it up, etc.

I have been splitting the mortgage with her since I’ve moved in. We are now looking to upgrade.

My question is this: What is the easiest way to transfer title to my fiancé (parents are on board as they see it as her house), then Use roughly 200k of equity on the purchase of our new home with as little to no tax implications?

Any advice is welcome and we love in Los Angeles county, California.

Thanks

Your fiance's situation is a little complicated from the tax side.

(1) I'm pretty comfortable saying your fiance and her ex-husband should have filed gift tax returns when the home was transferred.  Hopefully they did.

(2) It's uncertain whether or not your fiance will qualify for the Sec 121 exclusion, even though she probably meets the use requirement.  A deep conversation is needed to understand all the facts and circumstances.

(3) If the parents transfer the house back, the parents will most likely have a gift tax return obligation and use some of their gift & estate lifetime exclusion.

Worst case scenario is that your fiance would owe capital gain tax on the full amount of the gain if you two were to sell and use the equity for a new home.  Alternatively you could refi, use the proceeds for a down-payment on a new house, and turn the old house into a rental.

You may get value from consulting a tax professional to dive into the details and specifics, taking into consideration your facts, circumstances and goals.