Will my Mom have to pay income taxes if we buy her portion of our house?

September 13, 2006

From:  Frank
Date:  Tue, 30 May 2006

My wife and I own our home free and clear and my mom is also on the deed. We are going to borrow $20,000 against the house and pay my mother $10,000 to get her name off the deed. Will she have to pay income taxes for this transaction? The finance company says the interest rate will be 12% because of our credit. Can we get a better rate?

Answer

Date:  Wed, 14 Jun 2006

Hello Frank,

Sales between family members are complex. You should have an appraisal to determine the fair market value of your mother's share. Assuming it's $10,000 and that the home is her principal residence, there will be no tax. If the home isn't her principal residence, the excess of the sales price over her tax basis (tax cost) will be taxable long-term capital gain.

As to the interest rate, my best advice is to shop at other sources, including banks and savings and loans.

Good luck!
Mike Gray

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