Expert: Dick Dennis - 1/7/2010

Question
QUESTION: My wife and 4 children live in the house I grew up in with my mother.  My name and hers is on the title as a equal partners.  I want to purchase the house from her.  How can I purchase her half without a big mortgage that I can't afford right now?  I am concerned loosing the house should my mother need long term care of some sort.  My grandparents house went right to the nursing home.  I also have three older brothers that have thier own homes.  Any advice would be helpful I understand this is a long question.

ANSWER: Let me assume, Edward, that you own the house in which you live equally with your mother. If there is no mortgage on the property right now, then you do not have that concern. But you should pay your mother a fair price for her equity in the property. Right?

You can buy her half of the property by executing a mortgage in her favor, agreeing to pay her a fair amount each month until it is all paid. Since you did not say what value the house is, let's say it is worth $100,000. With nothing down, Edward, a $100,000 mortgage to her would amortize, say, at 5%, at $536.83. But you own half the property, therefore you would be obligated to pay her $50,000, payable $268.42 per month, say, for ten years. At that time, you would owe her $40,671. Hopefully, you would have saved enough from your job and qualify for a loan from the bank for that much and pay her off.

Or, the IRS allows her to gift up to $13,000 per year to you tax free. Another $13,000 to your wife. And $13,000 for each of your children. That equals $78,000. But, all that is needed is $50,000. So the house could be deeded to you and your family free and clear.

But before you attempt anything like this, you should consult with a tax attorney, a CPA, or other tax expert to make sure this is done exactly right. You would also need to get an appraiser to do an evaluation on the property because the IRS would demand it.

I do wish you well, Edward.

Dick Dennis
dixiedee13@aol.com



---------- FOLLOW-UP ----------

QUESTION: Dennis, my brothers and I are in my mothers will, basically one quarter going to each son.  So do I buy them out if she gifts me the house as well as take care of her financially.

Second question.  Is how is improvements I have made to the house accounted for?  For example, new roof $5,000.00, new furnace $2,500.00, cement work outside $9000.00 and so on.  Does that come off what I owe for the house?

Thank you.

Ed

Answer
First question answer: yes. But now you should ask your brothers to make sure what you are doing is approved by them. Otherwise, you're in for big trouble with the, for sure.

Second question answer: Be sure to show your receipts and proof of the cost you put into the property already and then settle with your mother and brothers how much of a credit you should get in the whole process.

You now should see THREE ATTORNEYS. An ESTATE attorney to settle how the property is to be divided. And the TAX attorney to make sure anything you do that involves the IRS is done correctly. A REAL ESTATE attorney to make sure the transaction goes down right.

Dick