[Ron674]

Hi just want to know if there's any tax implication in buying Parents home purchased cash for $280,000 . We agreed to buy their home for $330,000 with monthly installments/payments to them for 10 yrs ( property tax included) no bank financing due to poor credit). We signed contract and notarized . Our name will be added to title after 2 yrs. *** advice. Thank u. Ron

[ScottGem]

Ok, it sounds like you have a contract for sale. So there is no tax implication at this point to you. Your parents will have to pay taxes on the interest. Once you are on the title you can deduct the interest.

[AK lawyer]

... We signed contract and notarized . Our name will be added to title after 2 yrs. *** advice. Thank u. Ron

I suggest you get this contract reviewed by an attorney. It could be well worth investing a few bucks.

Added to the title? So your name plus their name will then be on the title in two years? What's the point of that?

Ok, it sounds like you have a contract for sale. So there is no tax implication at this point to you. Your parents will have to pay taxes on the interest. Once you are on the title you can deduct the interest.

At some point, parents will have to pay income tax on their capital gain.

[ballengerb1]

Not part of your question but why are they selling you their homestead, where will they go.

[Ron674]

Parents are moving back to Canada. Once the house is fully paid parents name on title will be removed (quit claim) thus we'll have full ownership of the property. What do u mean pay taxes on interest? No financing involve with this purchase. We agreed to buy property for $330k due to recent upgrade they put in worth almost$60k. House is 1yr old. After two yrs as agreed upon we'll have exclusive right in deducting property tax. Is there any other tax implication w/ IRS once the house is fully paid besides paying property taxes and transfer tax from county recorder?

[ScottGem]

If your parents have no capital gain, then that eliminates paying taxes on the sale. If they won't be charging you interest then you have no liability there.

The only thing that I would check then is whether an interest free loan would cause a problem. The IRS has, traditionally, looked closely at deals where property is transferred to family members. So you really should have a real estate lawyer look at the contract.

[AK lawyer]

... Once the house is fully paid parents name on title will be removed (quit claim) thus we'll have full ownership of the property. ...

You will want more than a quitclaim deed. I suggest, first, that you get title insurance, which will tell you if there are any liens on the property. If there are, your parents should be responsible to take care of those liens. What accepting a quitclaim deed would do would be to release them from responsibility for those liens, or liens that may be applied between now and then. This is one example of why it's important that you have an attorney look at this deal.

Also, be aware that there are hazards associated with a land contract such as this, particularly where the sellers are moving to a foreign country. If, at the completion of the contract, they fail for whatever reason to execute the deed, what are you going to do?

[excon]

We agreed to buy their home for $330,000 with monthly installments/payments to them for 10 yrs

Hello Ron:

Couple things.. Your parents WILL have capital gains on $50,000, but that's not your problem. Your problem is coming up with $2,750 a month... Or, not. I don't know your finances, but that's the payment on a $330K interest free loan over 10 years. . That's an awful lot of money to come up with every month, especially for people who've had credit problems... If it's LESS than that, you're going to have a balloon payment due in 10 years. How are you going to handle that?

excon