Tax Law (Questions About Taxes)/Satisfaction of Mortgage

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Question
I am the mortgagee of a single family home. The current outstanding balance on this recorded mortgage is about $75,000. Since the mortgagor is my daughter, I would like to eliminate the entire amount owed without either of us incurring any Federal income tax liability. I believe there are 2 ways to accomplish this. The first is to send her a check for the outstanding amount (as a gift) and she will then write a check to me for the same amount in payment of the mortgage. I know if this is done, I would be required to file a Federal gift tax return and the difference between the amount I gave her and $14,000 would be charged against my lifetime exemption. The other method is to just file a "Satisfaction of Mortgage" form with the County Clerk's office. If I do this, I'm concerned that the IRS would consider this to be forgiveness of a debt, which I believe is a taxable event to my daughter. I would appreciate your thoughts on this matter. Thank you.

Answer
Alan,

Thanks for your question.

The simplest way is to cancel the mortgage as a gift. You don't need to exchange checks, and the gift tax return would still be required, but other than not exchanging checks, it would work just like your first scenario. Since it is between related parties, the IRS will consider it a gift and not cancellation of debt income to her.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA

Expertise

I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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