Say I have a house that I've been renting to a family for a dozen years. Family has been very good to me the entire time helping out with chores at my (not the rental) house etc...

Renter approaches me wanting to purchase the house. For arguments sake let's say it's worth $50,000. I don't really need the money BUT I don't want to incure any headaches. Renter is very good people but can only qualify for FHA loan. I suspect that FHA will require upgrades that I don't want to deal with leading to complications. Renter wants to own so he can make upgrades he wants to make but not to what is my property.

I'm actually inclined to just give them the house instead. But, all scenarios I come up with have complications. At least I think they do.
If I gift it, I'm subject to gift taxes, right? Also probably legal fees to do it right.
I'm afraid there would also need to be a survey because there is adjoining land I intend to keep.

Is there an easy way to do this without headaches?

Hire a lawyer to do everything.
Make the renter foot the bill for the lawyer and any taxes/fees.

Lawyer does the work - renter gets the house - you just sign the paper.

Why not sell it and carry the note?

quote:

Originally posted by creslin:
Hire a lawyer to do everything.
Make the renter foot the bill for the lawyer and any taxes/fees.

Lawyer does the work - renter gets the house - you just sign the paper.

Real estate is not my forte, but this sounds like a plan.

Another scenario - and I have no idea whether it works in your jurisdiction - would be to just execute a quit claim deed.

Do some research in gift tax. You can give a certain amount, maybe $15,000 to each of as many individuals as you wish without incurring gift tax. There is also a lifetime exemption of some large amount, several millon I think, so there might be a way to avoid any gift tax.

I'm sure the boys here will consider this great karma, and will have no problem dealing with improvements of nearly any complexity without a whimper to sell to your tenants.

Annual gift tax limit is $14,000. So, an individual can gift $14,000 per year to any other individual. If a couple gifts, they can "gift split" and gift up to $28,000 to any one individual. If a couple gave to another couple, as two individuals, they could gift a total of $56,000 in a single year to the pair. In the case of gifting real estate, you will want a formal appraisal so the gift valuation is empirically established. And, as was suggested, get a lawyer schooled in estate and gift tax to handle the transfer.

quote:

Originally posted by JALLEN:
Do some research in gift tax. You can give a certain amount, maybe $15,000 to each of as many individuals as you wish without incurring gift tax. There is also a lifetime exemption of some large amount, several millon I think, so there might be a way to avoid any gift tax.

I'm sure the boys here will consider this great karma, and will have no problem dealing with improvements of nearly any complexity without a whimper to sell to your tenants.

Knew about the personal exemption. Do you know if one could gift to the couple and their two kids if the kids would not be named as owners of the house? Seems like that could be a possibility. Also considered transfer some this year and some after the first to get to the total needed.

No, the gift needs to be to a specific individual. So, in your hypothetical, the kids would have to be the ones taking title in order to complete the gift.

That's why you want a competent lawyer handling it so the transaction is specifically traceable to the donees.

It would be possible to do the gifting in two tax years to keep the amounts below the $14,000 limit but then you are both owners of the property between the time of the gifting and you double the legal effort necessary to transfer the total property. I would avoid that angle if possible.

quote:

Originally posted by Powers77:

quote:

Originally posted by JALLEN:
Do some research in gift tax. You can give a certain amount, maybe $15,000 to each of as many individuals as you wish without incurring gift tax. There is also a lifetime exemption of some large amount, several millon I think, so there might be a way to avoid any gift tax.

I'm sure the boys here will consider this great karma, and will have no problem dealing with improvements of nearly any complexity without a whimper to sell to your tenants.

Knew about the personal exemption. Do you know if one could gift to the couple and their two kids if the kids would not be named as owners of the house? Seems like that could be a possibility. Also considered transfer some this year and some after the first to get to the total needed.

I am sorry to say I've told you all I know and more besides.

As in all other areas of endeavor, if you don't know what you are doing, get somebody who does, because slight flubs or misinformation can be costly.

There is a way to do it, but it may involve a number of considerations, how to deed, what documentation required or advisable, etc. Don't just hand your tenants a quitclaim deed and wish them luck!

Thanks to all for the responses. You guys pretty much confirmed my understanding of the options.

quote:

Originally posted by BadDogPSD:
Why not sell it and carry the note?

That idea gets my vote. You can 'forgive' payments during the year to be a nice guy and allow for improvements, vacations, etc while staying under the gift tax limit.

Check with your CPA on minimum interest rate that is allowable by the fed.

Seems like a win-win

Mike

i have no idea about your situation other than what you have posted. But another option is to sell it to them for a fair price. They apply for the loan to purchase. Once purchased you could always gift them monies towards paying for the house as you see fit.

I would sell it to them and give them credit for the past years rent. Then if you wanted, you could leave the house to them in your will if it is not paid off.

You never know what the future will bring and you might need the money. In my experience, I have given things and money to friends in trouble only to be stabbed in the back at a later date.

If the house appraises at 50k, could he gift 12.5k to each of the adults on December 30th or 31st, then on January 2nd of the new year then gift 12.5 to each adult again. That would limit the time that Powers77 and the recipient are both legally owners of the property, right?

This has to be too simple to work, am I correct?

If you want to give them the house you can do so. If you want to get fancy, you can get a lawyer to figure out what an appropriate discount for an undivided interest is, then use that to give them a chunk representing the annual gift tax limit one year, and another chunk the next. Alternatively, you can just give it to them and file a gift tax return, using up part of your exemption. As I believe both JALLEN and jhe888 have said more than once, hire an attorney who specializes in the area you need to help you out.

quote:

Originally posted by BadDogPSD:
Why not sell it and carry the note?

This. I'm literally waiting on my own tenant to finish making her down payment.

How about letting them do the repairs/upgrades needed to make the house qualify for a loan and see how they handle home ownership first. If that works out OK the let them finance it or gift it to them later.
The world (and Sigforum) is full of stories where someone gave a family member or friend a gift and it just let to all sorts of ill will or other unintended consequences.

quote:

Originally posted by shovelhead:
If the house appraises at 50k, could he gift 12.5k to each of the adults on December 30th or 31st, then on January 2nd of the new year then gift 12.5 to each adult again. That would limit the time that Powers77 and the recipient are both legally owners of the property, right?

This has to be too simple to work, am I correct?

Yes, that kind of an approach is workable. Only downsides are the increased cost of the paperwork for you have to "complete" each of the gifts for them to be valid transfers and the fact that you will both own the property between the two transactions.

If you tote the note the mid term rates (mid term loan longer than 3 years - max 9 years) is 1.94% right now.
For a 50,000 loan over 9 years the payment is would be $505 a month and the total interest would be $4,500. The interest part is the only part you pay income tax on. If nothing else it is a good way to get what you are taking in as rent now out of your taxable income.

You can use a deed of trust (your bank may have trust services available for cheap) to protect you and the buyer. The trustee would hold title to the home until it is paid for. It protects you because if they stop paying you can provide proof of that and the trustee can foreclose. It protects the buyer because you can't get out of the deal or change your mind.

An attorney and your accountant can set this all up for you reasonably.

I do this all the time in Florida, where I am a real estate attorney.
If they can get an FHA loan do it and sell it to them. Might be a few maintenance issues that they want resolved, tell the tenant to fix them and get his loan and the house is his.
If he qualifies for it then go for it.
If he doesn't qualify for the mortgage then don't hold paper on him.