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My boyfriend and I just bought a house (110K lien), and his parents will be moving in with us, in a garage-converted apartment. Parents are selling thier house for $ 80k to my boyfriend’s older sister. Since they are close to 80 and have no other assests, we are trying to invest legally but avoid capital gains. Should that 80k be paid on our house and add the parents to the title, or should the deed to the original house be passed as a “gift” to the sister and sister pay mom & pop under the table? Or should the 80k be split between all 7 of mom & pop’s children as an inheritance (even though both are alive, they do not have a will). Let me know what options exist.
The parent’s home is a single-wide mobile home on a permanet foundation on 1 1/2 acres of land in Maryland. They bought the land & the mobile home in the early 1980s and have owned & occupied it since then.

6 Thoughts on Parents selling home & moving in with me, how can they avoid capital gains tax?
  1. Reply
    john m
    July 5, 2011 at 3:19 pm


  2. Reply
    July 5, 2011 at 4:01 pm

    First, cap gains is paid on the profit made. The $ 80K less what they paid plus any upgrades they made. This means that they are well under the taxing rate. They are fine.

    Here is from the IRS

    Maximum Exclusion
    You can exclude up to $ 250,000 of the gain on the sale of your main home if all of the following are true.

    You meet the ownership test.

    You meet the use test.

    During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.

    If you and another person owned the home jointly but file separate returns, each of you can exclude up to $ 250,000 of gain from the sale of your interest in the home if each of you meets the three conditions just listed.

    You can exclude up to $ 500,000 of the gain on the sale of your main home if all of the following are true.

    You are married and file a joint return for the year.

    Either you or your spouse meets the ownership test.

    Both you and your spouse meet the use test.

    During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home.

    If either spouse does not satisfy all these requirements, the maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property.

  3. Reply
    William H
    July 5, 2011 at 4:40 pm

    Section 121 of the tax code allows for a primary residence exclusion of up to $ 500,000 of capital gains if you live and own the property for two of the last five years. If your boyfriend’s parents qualify, they can do whatever they wish with the money.

    If they are living with you, are they going to include you in their will?

  4. Reply
    Patti R
    July 5, 2011 at 5:03 pm

    They can exclude up to $ 500,000 in capital gains from the sale of their home if they meet the criteria – married and filed jointly the past few years, and it was their primary home. Have them put the money in the bank and make a will – PRONTO! Without a will, who will pay to bury them if they are destitute? If their name is on the house, you could be required to split their half with their heirs upon their death – lotsa complications – keep their name off the house.

    If there are living with you and paying no rent, get some legal advice – don’t rely on the Internet. We all mean well, BUT we sure could steer you in the wrong direction.

    Good luck – and God bless you for doing what’s right. Families don’t often take care of their “old ones” like they should – you two are gems!

  5. Reply
    July 5, 2011 at 5:41 pm

    Assuming that they lived in their home as their principal residence for at least 2 of the 5 years immediately prior to the sale there will be no CG tax due on the sale. They are WAY below the exclusion ceiling ($ 500k a married couple filing a joint return) so unless they’ve used the exclusion within 2 years of the sale no CG tax is due, nor do they even need to notify the IRS of the sale.

    They should keep the money for themselves! There are no tax consequences for themselves if they do. If they give the funds to their son there could be Gift Tax consequences for them.

    They should just execute a will that will divide their estate however they wish. If their estate is that small, there won’t be any estate taxes due, and monies received via a bequest are not taxed to the recipient.

    Do NOT add them to the deed on your home! That can massively complicate things when they pass, especially if they pass without leaving a will. (And should you predecease them in some catastrophic event, YOUR home could wind up in the hands of someone you’d rather it did not even if you have a will yourself!)

  6. Reply
    Debra d
    July 5, 2011 at 6:14 pm

    I asked the same question of my attorney, “How can we avoid capital gains tax when we sell the house?”
    He told me that we can hold on to the money for six months, but after that we have to either invest it in another house/property or pay the tax, there’s just no way around paying taxes!! I would (after the taxes are paid) have them invest the money safely and wisely. Keep their money out of your affairs, it causes too much family trouble!!
    of course, if they want to divide it up seven ways and give your boyfriend his seventh, won’t he also have to pay inheritance tax on that money? If that’s true he won’t end up with much.

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