Legal Question in Wills and Trusts in Massachusetts

Re: Estate Planning

You need to consult with a knowledgeable attorney. Be careful about transactions between related parties - the income tax consequences are not necessarily the same as between unrelated parties.

Your father has a lifetime gift tax exemption of $1,000,000, which he could use a portion of if he were to give you money to pay off the mortgage (or some lesser amount to pay off the difference between what a buyer would pay you and the current mortgage.) There are many different options, but the best option would depend upon the particular circumstances affecting both your father and you (and any siblings).

Assuming (without knowing whether you have any adjustments to your basis) that your basis is $290K, your capital loss would be whatever the difference is between that and the sale price.

Under the circumstances, you really should speak with an accountant, and your father should speak with an estate planning attorney.

Please contact my office if you need legal counsel

Re: Estate Planning

In regards to your property, I'm not sure if you're looking to sell it to your father and the have him sell it back to you? If you sell it to your father, you will incurr capital gains or losses depending on the amount sold. When your father pays off the mortgage and then resells it back to you, he will have to pay taxes on the gains again.

However, if he were to simply give you $240,000, that is a gift and it is subject to gift tax. A person can only gift $12,000 per person per year. At that rate, it'll take your father 20 years to gift the whole mortgage amount to you. On the other hand, if you own the house jointly with a spouse for example, then your father can gift to both you and your spouse $24,000 total per year which would have the mortgage paid off in 10 years. If your father is in very good health, then this might not be a bad option.

If you simply sold your home to your father at a loss of $240,000, you could take a capital loss off your taxes and your father will own the home outright. If he simply passed it on to you after he died, either via a will or trust, then you will get a step up in cost basis equal to the value of the home on the day he died. If you sold the house immediately afterwards, you would not be taxed anything.

There is probably more to the story and more to consider for you and your father's estate plan. Please contact an attorney for a more in depth analysis.

Re: Estate Planning

I do not think the solution is one that works for you or your father.

Your father could buy the home from you for the same $290,000 you paid and then sell it later and take a loss. You recover your down payment and he can sell it and take a loss within a reasonable period of time.

Your plan has some gift issues in it. As to your father's estate, if it is $2 Million or less there are no federal estate tax issues. Massachusetts has an inheritance tax that begins above $1 Million. You don't indicate whether or not your father has a spouse who also factors into this as well.

There are some things you can do with your father that would benefit both of you, but there is not the place to go into detail about them as there are other facts to be taken into account.

The annual gift exclusion is $12,000 per year. Your father could loan you the money and then gift $12,000 in principal each year.