Gift property or sell property?

Question

We are helping  my parent-in-law to buy a new house. They own a Townhouse now. We want to take over the Townhouse as a rental property.

The plan was I buy the townhouse from my parent-in-law, and they take the money to put down to the new house, we help on the rest mortgage. We will have mortgage on the townhouse too and it will be rented out.

But it seems another option is they can gift the townhouse to us. This way we don't need pay the property transfer tax. But We will not have mortgage on the townhouse.

Appreciate suggestions and advices here. Thanks

David Wong · Answer

Thanks!

I think I posted on wrong forum, I am in Canada. But what you said is also applied here. If I take it as gifted, I have to pay capital gain later. That is not good.

I think I will just buy from them.

Ashish Acharya · Answer

They might want to sell the townhouse to keep their 500k capital gain exclusion under Sec 121. You would also get the step-up basis for more deprecation.  Gifting will transfer over the their old basis and you will eventually pick to the cap gain that could have been avoided.

Caroline Gerardo · Answer

You are helping your parents buy AND they are giving you it at the same time? Not understanding what you are saying. Depends on the state but a parent can transfer by family transfer their primary residence to their child without property tax in California up to a million dollars.  But you mention rental???