Expert: Dick Dennis - 4/20/2009

Question
10 years ago we moved into a house that my mom owns and rented out.  We intended on buying it from her so when we moved in we invested about $25,000 in improvements (garage, brought natural gas onto property). Shortly after moving in I lost my job and could not afford to buy it.  Now I have had a steady job for 7 years and would like to buy it.  However, the market in the area has gone up significantly.  I have no money to put down because everything I had was put in the improvements (I know stupid mistake.) The house is paid off by my mom.  We have just been paying her rent for the past 10 years.  What would be the best way to buy the house but still get credit for the money we have invested?

Answer
Easy problem to solve, EJ. First of all, you say that the property has gone UP in value? That is a strange thing to hear these days. Where is the property located?

What you need to do, EJ, is to have her sell you the property, giving you credit for the value of the work (don't inflate it) you've had done. Since she owns the property free-and-clear, she can sell it to you and carry the mortgage. Your monthly payments would be as agreed between you and her. I am assuming when you say "we," you are referring to a husband-wife ownership. Besides you making your regular payments, your mother is permitted by IRS rules, to give you $13,000 each per year as being paid off your mortgage with her tax free for you and your mother.

However, I strongly suggest you do this the right way. And the right way is to see a local tax attorney, real estate attorney or CPA to put this transaction together for you. If the way I have constructed this is acceptable to your mom, then you should have no problem with it. I do wish you well.

Dick Dennis
dixiedee13@aol.com