Sale of house

[camfused]

I have a question for y'all. I have talked my 62 years old sister into retiring from her high-stress job. She really needs to do this to preserve her health, and is fully onboard.

We are about to sell my dad's house, in a couple months, which is deeded to be 99% in his name, .5% in her name, and .5% in my name. It will net about 300K from the sale. She needs 80K of that to pay debts and enable the start of her retirement (and will also start SS).

The question is, how best to get that money to her? I am thinking, if he gifts her 15K now, gives her 50K more, and then gifts her 15K on Jan 1st, she will only need to pay taxes on 50K.

Is there a better way to do this (get the money to her)?

 

[braumeister]

Gift tax is paid by the giver, not the recipient.

 

[Souschef]

There seems to be a misconception about gift taxes. The current floor is over $5 mil before any tax is due.
There is a requirement to file a form 709 if the gift is over $15K. BUT, there is no tax liability.
Gifts subject to the gift tax. The following gifts are considered to be taxable gifts when they exceed the annual gift exclusion amount. Remember, taxable gifts count as part of the $5.49 million in 2017 you are allowed to give away during your lifetime, before you must pay the gift tax.

 

[kcowan]

She can receive $15k this year and next. She will get $15k from the sale of the house less any capital gains taxes. So half her debts will be done. The other half can be worked off over the next few years.

 

[Dash man]

Assuming your Dad is on board with this, what Souschef said.

 

[ExFlyBoy5]

There seems to be a misconception about gift taxes. The current floor is over $5 mil before any tax is due.
There is a requirement to file a form 709 if the gift is over $15K. BUT, there is no tax liability.
Gifts subject to the gift tax. The following gifts are considered to be taxable gifts when they exceed the annual gift exclusion amount. Remember, taxable gifts count as part of the $5.49 million in 2017 you are allowed to give away during your lifetime, before you must pay the gift tax.

This. A lot of folks get tied up with the 15K a year...but that doesn't mean that there will a tax associated with it. That only comes due when you exceed the LIFETIME amount which as illustrated is $5M.

 

[harley]

There seems to be a misconception about gift taxes. The current floor is over $5 mil before any tax is due.
There is a requirement to file a form 709 if the gift is over $15K. BUT, there is no tax liability.
Gifts subject to the gift tax. The following gifts are considered to be taxable gifts when they exceed the annual gift exclusion amount. Remember, taxable gifts count as part of the $5.49 million in 2017 you are allowed to give away during your lifetime, before you must pay the gift tax.

Yes. Exactly. I'm one that had the misconception, but the fine folks on this site have straightened me out. Going over the $15K limit just becomes a matter of filling out a tax form.

 

[MildlyEccentric]

If you don't want to file gift tax returns, your father could loan your sister the 80K and then gift her 15K per year for as many years as it took to repay the loan. The loan would have to be appropriately documented and your sister would have to pay the IRS minimum interest rate on the loan as well as make regular payments on the loan balance. This assumes everyone is on board with the idea.

 

[ivinsfan]

I have a question for y'all. I have talked my 62 years old sister into retiring from her high-stress job. She really needs to do this to preserve her health, and is fully onboard.

We are about to sell my dad's house, in a couple months, which is deeded to be 99% in his name, .5% in her name, and .5% in my name. It will net about 300K from the sale. She needs 80K of that to pay debts and enable the start of her retirement (and will also start SS).

The question is, how best to get that money to her? I am thinking, if he gifts her 15K now, gives her 50K more, and then gifts her 15K on Jan 1st, she will only need to pay taxes on 50K.

Is there a better way to do this (get the money to her)?

Does your Dad have a chance of need nursing home care in the next 5 years.. any and all gifts will be clawed back if needed for his care.

YMMV, but if this was my DS I wouldn't want the burden of having talked her into retirement with her set of numbers. I hope it all works out .

 

[camfused]

OP here. It looks like we will just have him (yes, he will be onboard with this too) give her the 80K, and fill out the form 709. Thanks all!

 

[njhowie]

How about:

1. Dad gifts your sister $15k now and $15k Jan 1.
2. Dad gifts you $15k now and $15k Jan 1.
3. Dad gifts your wife (or another relative) $15k now and $5k Jan 1.
4. The following day and Jan 2 you gift your sister $15k
5. The following day and Jan 2 your wife (or other relative) gifts your sister $15k and $5k

The $80k has made its way from dad to your sister and avoided the Form 709 filing.

An individual is allowed to gift $15k/year to as many different individuals as he/she likes without making the Form 709 filing.

Definitely keep copies of checks and paper trail in case questions arise later.

Check with a tax professional or maybe there is one here who could chime in.

 

[njhowie]

If you are up for it, I also have another alternative, which if you are on-board with filing the Form 709, depending on state where dad resides, may result in dad getting annual state tax credit. If dad is in a state with no income tax, or he doesn't have any annual state tax obligations, it's of no importance. However, if there is or you have interest, I can float that idea as well.

 

[Just_Steve]

Just have your dad write the checks to her creditors because the creditors don't care where the money comes from and the govt will never know.

 

[camfused]

Just_Steve, simple but effective! But, from what I have read, the IRS treats this as a gift, and it is no different than just giving her the money.

 

[athena53]

Just_Steve, simple but effective! But, from what I have read, the IRS treats this as a gift, and it is no different than just giving her the money.

I believe he was referring to ivinsfan's point. If your Dad may need Medicaid to pay his nursing home care in 5 years, anything he gifts her in the 5 years before he applies will be "clawed back". (This is to prevent people from giving away assets to meet Medicaid requirements so taxpayers pick up the bill- any payments/transfers in the last 5 years will be scrutinized.) If you Dad just plain pays her bills directly, that may go unnoticed.

Also, to ivinsfan's other point: she needs this money to pay debts and START a retirement fund? While leaving her high-pressure job may be a good idea, will she be able to live on SS and what she has saved, if anything?

 

[camfused]

My dad will not need Medicaid (has too much assets), and is already in assisted living.

I have helped her to create a plan where she will live mostly off her SS ok. She just wants to pay off some debt (like mortgage) to lower her monthly needs.

Thanks all.

 

[aschmeerbauch]

Additional Savings

Hey Camfused,

This isn't directly related to getting the money too her, however, there's also another way you can save a some money on the sale of the home.

I recently sold my home and was looking into alternative and found a flat fee agent and was able to save quite a bit of money. You may want to check it out.

My list price was right around yours and I saved $6,000 dollars. They offer a flat commission for the seller side of the home selling process. So normally commission is around 6% (3% buyers agent and 3% sellers agent). Flat fee was 3% buyers and $3,000 flat sellers agent fee. So instead of $18,000 commission I paid $12,000, and the whole process took like 2 weeks.


[moderator edit: Removed links to flat-fee RE broker]