Transferring Dad's property into my name.

[Jason Wilson]

My dad bought the house for a dollar and I was planning on buying it from him for a dollar as it is a vacant property that needs over 70k worth of renovations to make it livable. He does not have the desire to get a HML and refinance and do all the leg work himself. Therefore, he said I can have it for free. He owns it outright. How do I achieve this without screwing up and owing tons of taxes or something.

Thanks,

Jason

[Eliott Elias]

Talk to a title company and CPA. 

[Luis Alvarez]

Hi @Jason Wilson, that's awesome to have bought a house for $1! Not knowing all of the circumstances like the location of property (though I presume somewhere in PA?) or if there are any county or municipal restrictions due to the purchase price of $1 (was their some sort of commitment as part of a rehabilitation project?) we would typically approach this with a Purchase and Sale Agreement and the proper deeds (and applicable county assessor forms) to transfer title from the Seller (your dad) to the Buyer (you).

Again, not knowing the full details, it sounds like your dad's cost basis is $1 and if he sells to you at a low price (presumably not also $1) the gain would be nominal. However, this is where a tax mind (familiar with the region) would be vital to determine reasonable FMV of the property in the eyes of the IRS and local values so as to not make it look like a transaction between family members is being put together for the purpose of avoiding fair market tax assessments.

Not giving you specific legal or tax advice, just some personal thoughts :)

[Gregory H.]

Neither PA nor Philadelphia charge transfer tax between immediate relatives. Talk to a title company or attorney to do the paperwork so you can rest assured that you don't have any title issues.

[Matt N.]

@Gregory H.

For my own knowledge... In this scenario what are the family members asking the title company to do? A deed transfer? or a dollar sale?

What if this were to happen between friends, and not family members? 

Thanks,

Matt

[Eric W.]

I'm assuming this is a single family?  Buying for only $1, particularly if the fmv is higher, on an investment property, will set you up for some capital gains when you sell.   However,  if you live in it for 2 (of the past 5) years prior to selling it,  then you will have an exemption from capital gains, and a straight up sale at $1 should not have any negative tax impact 

[Jason Wilson]

Quote from @Luis Alvarez:

Hi @Jason Wilson, that's awesome to have bought a house for $1! Not knowing all of the circumstances like the location of property (though I presume somewhere in PA?) or if there are any county or municipal restrictions due to the purchase price of $1 (was their some sort of commitment as part of a rehabilitation project?) we would typically approach this with a Purchase and Sale Agreement and the proper deeds (and applicable county assessor forms) to transfer title from the Seller (your dad) to the Buyer (you).

Again, not knowing the full details, it sounds like your dad's cost basis is $1 and if he sells to you at a low price (presumably not also $1) the gain would be nominal. However, this is where a tax mind (familiar with the region) would be vital to determine reasonable FMV of the property in the eyes of the IRS and local values so as to not make it look like a transaction between family members is being put together for the purpose of avoiding fair market tax assessments.

Not giving you specific legal or tax advice, just some personal thoughts :)

Thanks for all the advice. Yes, I do not want to do anything illegal by avoiding taxes on FMV of the property. I will keep this in my mind when I am doing the transfer. Not sure if buying it from my dad or him just gifting it to me is the best plan. I need to consult a lawyer most likely as others here have psoted.

[Jason Wilson]

Quote from @Gregory H.:

Neither PA nor Philadelphia charge transfer tax between immediate relatives. Talk to a title company or attorney to do the paperwork so you can rest assured that you don't have any title issues.

 Following on top of what @Matt N. was asking... If I just do a deed transfer, there shouldn't be any tax issues I need to address. I'm not worried about my cost basis or future taxes if I sold as I plan on holding onto forever after I fix it up.  OR 1031 into something else if an opportunity arises.

I was worried I need to report this on tax return as a gift and then keep reporting as income for whatever the FMV is of the house going forward.

Thanks,

Jason

[Steve Vaughan]

Most average people can absorb a substantial long term cap gain with minimal tax implications.  I can typically do $60k per year but I have 0 earned income and 2 dependants. 

I would figure out what his max is and 'pay' that, especially in the ballpark of market value. 

Yeah, there'll be up to 4% in transfer taxes in PA to the county, but you'll establish a depreciable basis and won't get into gift tax territory for your dad. 

[Eric W.]

Unless your dad plans to give away more that $12m in his lifetime,  or already has,  then no need to worry about gift tax.  There will be none. 

It's short sighted ( even stupid) to not worry about capital gain, because sometimes it's not practical to 1031 (in fact its always a challenge to do it efficiently) and you never know when you might need to sell.

However, if you're not planning to live there,  then there is a valid reason to buy it at fmv and have your father gift you the $ to do so, as mentioned above  it does give you a depreciable basis

[Steve Vaughan]

Quote from @Eric W.:

Unless your dad plans to give away more that $12m in his lifetime,  or already has,  then no need to worry about gift tax.  There will be none. 

There are annual gift limits, like $15k.

It can be more than $15k in 1 year if paperwork is filled out,  reducing it from lifetime (federal) allowable, but it still needs to be acknowledged. 

States all have different regs. 

But thanks for telling everyone not to worry about gifts as long as they are less than $12M. LOL

[Eric W.]

Quote from @Steve Vaughan:

There are annual gift limits, like $15k.

It can be more than $15k in 1 year if paperwork is filled out,  reducing it from lifetime (federal) allowable, but it still needs to be acknowledged. 

States all have different regs. 

But thanks for telling everyone not to worry about gifts as long as they are less than $12M. LOL

 Whatever bro, don't be rude if you don't know what you're talking about.

Go on believing whatever you barfed out there

[Steve Vaughan]

Quote from @Eric W.:

Quote from @Steve Vaughan:

There are annual gift limits, like $15k.

It can be more than $15k in 1 year if paperwork is filled out,  reducing it from lifetime (federal) allowable, but it still needs to be acknowledged. 

States all have different regs. 

But thanks for telling everyone not to worry about gifts as long as they are less than $12M. LOL

 Whatever bro, don't be rude if you don't know what you're talking about.

Go on believing whatever you barfed out there

 Form 709- straight from the horses mouth:

"Even if you do not owe a gift tax because you have not reached the 2022 $12.06 million limit, you are still required to file this form if you made a gift that exceeds the $16,000 annual gift tax exclusion level. The IRS needs to keep a running tab of your lifetime exemption."

[Eric W.]

Is filing the form what you mean by "gift tax territory"?  OP asked for advice.   #1 contributor advised him that his father would be in "gift tax territory".  

I thought a clarification was needed, as for the vast majority of gifters, there will be no gift tax.  Lots of people would read that and be confused, thinking they will owe tax,  when in fact, they will not.   If mentioning this hurts some feelings,  i think we're being a little sensitive.

Thanks for looking that up,  #1, next time maybe looking up before the snotty comments