Gift Of Equity
I live in Louisiana, my husband and I are buying his father's house...the house has a clear deed with no leins...if his father gifts us $85,000 in equity to use toward our mortgage (house appraises for $110,000) what kind of tax implications will he have? My father-in-law took out a 2nd mortgage on his primary residence to buy this house (it was his father's) and now wants out from under it.
I'm 99% sure the max he can gift to you tax free for him and you is $11,000 per year. Sounds like you should call a local accountant.
[ Edited by BMan on Date 03/02/2004 ]
Your father in law can gift your husband $11,000 and also gift you $11,000 without any tax implications, as long as you are both listed as the buyers. If he holds title with someone else, then they can both gift you $11,000 and your husband $11,000 for a total of $44,000.
CBilyeu,
Contrary to what was mentioned in a previous response, you have no tax liability from a gift. Your father-in-law can make a tax free gift of $11K to you and another tax free gift of $11K to your husband each year.
The amount of any gift to a single individual that exceeds $11K in a single year is reported on a Gift Tax Return (Form 709) by the giver. In your case, your father -in-law would complete Form 709 and file it with his annual 1040. In most cases, the Form 709 is just an information return because an actual gift tax is not paid until the total of all lifetime reportable gifts exceeds the giver's lifetime exclusion.
State tax law varies on the lifetime gift exclusion limit and may assess a gift tax a lot sooner than the federal government.
What your father might do to avoid gift tax issues completely is to add you and your husband to the title in shares proportionate the the annual exclusion. For example, if the property appraises at $110K, a tax free gift of 10% equity to your husband would be equal to $11K. Another tax free gift of 10% equity to you would equal another $11K. Combining these two gifts, you and your husband now have a 20% equity in the property.
Next year, your father-in-law can do it again, giving you and your husband combined another 20% equity in the property -- tax free.