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September 17, 2009
Gifting House to Bro?
This might be an odd one and I am talking to banks and lawyers, but thought someone here may be able to help. I have a house out of state that my younger brother has been living in for over 10 years. I would like to give him this house. This would consist of him taking over the payments of my 1st mortgage and Equity Line of Credit on the property - which he has in effect been paying in rent for years. I'm open to keeping the mortgages in my name if we can also get his name on them and the title, or any other ideas. He is younger and has just begun creating a credit history so his score is not good (not sure exactly and will find out but last I knew it was not good enough to get him a refinance in his name alone). If it matters both the 1st and Equity LOC are around 100K for a total owed on the property of about 200K. An appraisal would put the value between 210K-250K. Does anyone know of a way to do this?
Thank you all!
Comments
Tenants In Common or Joint tenancy With Right Of Survicorship. You can also put it in a revocable trust. Ask the lawyer. if he doesn't know I'll recommend another lawyer.
Posted by: daveinbedstuy at September 17, 2009 2:35 PM
Thanks Dave! I'll look into that... do you know how that would effect mortgages?
Posted by: amybnyc at September 17, 2009 2:37 PM
Typically, as long as it remains in your name (alone or not) and the payments are made, it shouldn't have any effect. I'd ask an accountant as to how to work it out so that you can split the deductability of the interest or he can deduct it. Not sure if that's at all possible with you receiving the 1099 and not him, unless you work out an approprite deal between the two of you that would account for it. In other words, you take the 1099 deduction and essentially pay him cash for it.
You don't want to have to refinance unless you have some super high rate now (or an adjustable). It's too difficult n environment.
Posted by: daveinbedstuy at September 17, 2009 2:55 PM
Your brother could claim the tax deductability as he has the cancelled checks to prove that he made the payments.
Posted by: SenatorStreet at September 17, 2009 3:14 PM
I think that might be all it takes, SS but I'd get an accountant's advice
Posted by: daveinbedstuy at September 17, 2009 3:18 PM
Our situation was kinda sorta similar. We had bad credit but decent income. My dad "bought" the house for us and the mortgage was in his name but we made all the payments. He then "sold" the house to us for $1 and we did a change of title. After a couple of years, we were able to get a mortgage in our own names by showing the bank that we were the ones who had made all the payments (I think we had two years of steady, ontime payment history). As for deducting mortgage interest, we were allowed to take the deduction even though mortgage was in my dad's name. Our accountant cross referenced his social security number on our return so the IRS could see that the deduction was not being claimed twice.
Posted by: whoamikidding at September 17, 2009 3:29 PM
SenatorStreet is that right? Could the brother claim ownership also?
Posted by: bitter_bubble_buyer at September 17, 2009 3:32 PM
Don't know if this is NYC (since it was not so in SF) but ANY change to title invalidates the mortgage and you'll have to refi with the new names (I'm doing a TIC right now and was told that yesterday.)
Posted by: cmu at September 17, 2009 3:32 PM
cmu - we didn't have that experience in NYC. Our mortgage was with Astoria Federal. Our lawyer handled the whole transaction.
Posted by: whoamikidding at September 17, 2009 3:39 PM
that's so nice of you to want to gift the house! that said, i thought JTWROS was just for securities accounts? Like a shared brokerage account? That's what we did when I was managing money for a family member.
Posted by: CG_ups at September 17, 2009 4:01 PM
Dave -
I just did before posting that!
Posted by: SenatorStreet at September 17, 2009 4:04 PM
can you transfer the title without getting it by the gift tax? that does not sound right to me
Posted by: bitter_bubble_buyer at September 17, 2009 4:05 PM
bitter_bubble_buyer: the brother is not claiming ownership; he is claiming the tax deduction BECAUSE he is paying the bill.
The cross reference on both tax returns is the correct "Cover Your Ass" procedure.
Posted by: SenatorStreet at September 17, 2009 4:06 PM
thanks senator
Posted by: bitter_bubble_buyer at September 17, 2009 4:16 PM
whoamikidding: would love to know details, as I was told that by a TIC lawyer. what was your transaction? Did the names on the deed change? In my case, I have to get my wife off the deed and my partners on, so supposedly this violates the terms of the existing mortgage.
Posted by: cmu at September 17, 2009 4:19 PM
Thanks EVERYONE - this is all so helpful. Keep the info coming!
fyi: what the banks are saying is in line with what CMU said (would have to refi to get his name on which I don't think is an option)...The house is in Portland Oregon (not nyc). And making things more difficult is that the mortgages were with WAMU which is now Chase but loans are not completely transfered over yet so blah blah blah...
:)
Posted by: amybnyc at September 17, 2009 4:20 PM
A 250K gift between siblings will trigger gift tax issues, so you should probably consult with an attorney to make sure it is structured properly (in Oregon as there may be state tax issues there too.)
Also remember, some of the advice on this board may be of limited help as some states (incl. Oregon IIRC) usually use deeds of trust rather than mortgages which means that the bank (as trustee) is the name on the title.
Posted by: Boerumresident at September 18, 2009 12:30 PM
I believe, unless the mortgage is assumable (and very few are nowadays), that the bank cannot be forced to change the name/debtors on the loans. Even if you put the deed in his name, the mortgage company can still require that you fulfill the terms of the original loan. That is probably why the bank is telling you to refi, they don't want to transfer the loan to someone whose risk they haven't evaluated. By refinancing your brother would effectively be applying for the loan and they have an opportunity to verify his financials. If you think about it, if the banks allowed people to transfer loans between each other, than people who were underwater on their mortgage with good credit scores could transfer their loans (for $$) to someone who already had bad credit, and then allow it to default, in effect preventing themselves from getting a foreclosure ding on their credit report.
Also re gift tax, just conjecture, but I would question whether or not the gift tax is even triggered if you owe $200k on the property and it's appraised at say $210k at time of transfer. I'm not an accountant or lawyer but seems like the total equity "gift" transfer in that case is only $10k equity and gift tax exclusion limit is $13k this year.
Sort of a conundrum in that respect, because it seems like more equity in the property the better chance of being able to do a refi and get the loan in brother's name, but also more likelihood that you would have to pay gift tax.
Perhaps the route of having your brother just start paying the mortgage directly and claiming the deduction would be easiest. You just have to keep an eye on the statements and make sure he doesn't miss or make late payments.
Anyway, I would talk to an Oregon-based accountant and lawyer in if I were in your shoes.
Posted by: setancre at September 18, 2009 1:09 PM
Also don't forget that there may be capital gain tax on a property that is not a primary residence for the seller. All the more reason to talk to an accountant and/or lawyer.
Posted by: Boerumresident at September 18, 2009 2:17 PM
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