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You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > Real Estate Purchase from family member
Expert: Helen P. O`Planick, EA
Date: 8/19/2008
Subject: Real Estate Purchase from family member
Question
My mother-in-law's home was recently burned in a fire. She has no property insurance and no means of repairing the house. She owns the house with the exception of back real estate taxes of approximately $30,000. Comparable homes in the neighborhood (Northeast Philadelphia row house) have sold recently for around $150,000.
My wife and I are considering purchasing the property for $10000, paying off the tax lien, and spending between $30k-$50k to repair the home. We would then either rent the house to my mother-in-law or sell it.
Could you please provide any tax implications with real estate transactions between family members including both scenarios of rehabbing and selling or using as a rental property.
Also, given this situation would you recommend consulting with an accountant? real estate lawyer? both? or someone else?
Thanks.
John
Answer
John, I see nothing wrong with your plans. You will have a low basis for the home ($10k plus taxes paid plus improvements), so if you sell at the current prices you will have tax to pay.
If you are renting it out to Mother, you will want to be careful to charge her fair market rent if you want the write off on your tax return.
Helen, EA in York, PA
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