Check out some similar questions!

gramey678 · Nov 8, 2015, 07:00 PM

My husband and I own outright a small second home in the Adirondacks. OUr widowed son is now residing there and we want to sell him the house at fair market value $100,000 over a 4 year period. I am wondering if we can do a warranty deed, file forms and pay NY transfer tax and be done with it? Do we have to charge him interest? Are we better off waiting until he can pay the sale price all at once? House value has decreased since we purchased it in 2008.

joypulv · Nov 8, 2015, 07:26 PM

All you need to do is write up a sale agreement and file the deed (and yes, pay the transfer tax). You must charge interest according to IRS "intra-family" rates, which vary by term (if I remember <3 yrs, <9 years) and change monthly. It's a very low rate that is always lower than bank rates. I did this with my parents. No lawyers needed.

He can deduct the interest just as he would with a bank loan. You then have to declare it.

You don't have to have a formal property appraisal, but keep a record of what RE agents suggested for fair market, as well as the town, especially because it has gone down in value. The IRS doesn't want anyone sneaking in a lower value to avoid taxes, and I do know people who have been audited about this.

Fr_Chuck · Nov 9, 2015, 12:54 AM

Agreed, you make it all in writing, have a loan agreement with interest written, then a new deed along with the mortgage is filed,

ebaines · Nov 9, 2015, 11:30 AM

Just oe more point to add: to be a proper mortgage the mortgage document must specify that the house is collateral on the loan, meaning that if he defaults on the loan you will foreclose. If the loan agreement doesn't include that, then it's a personal loan rather than a true mortgage, and the interest payments he makes to you won't be deductible on his taxes. And as Fr_Chuck alluded, the mortgage document must be filed with the town.

AK lawyer · Nov 9, 2015, 03:01 PM

It has been suggested that a sale agreement and a deed be written at the same time, and later it was suggested that a mortgage be used. While an agreement can be written together with a mortgage, the agreement would be somewhat redundant.

To protect OP's security interest, they should do this properly. Thus either a contract for deed (with no deed to be executed until after all the payments have been made) or do a mortgage note plus a mortgage. In either case, a few hundred dollars for an attorney may well be a good investment.