Legal Question in Real Estate Law in California

Re: Buy Out

I've read your question through several times, and my overall conclusions are that the deal is fair if it really carries out everyone's wishes, and no one changes his or her mind. However, most of the adverse tax impacts you allude to are indeed there, either payable up-front by the donor in the case of the gift tax and capital gains on the one-half that changes hands now, or, upon an eventual sale, capital gains on the remaining half. I think taking out a HELOC and distributing the proceeds would be gifts (taxable to the donor) and not income taxable to the donee.

There are some exemptions that would be available to shelter some of the gift. Calculating the actual impact of taxes would require input from a tax expert who could inquire into other factors such as everyone's tax bracket, marital status, etc.

A mother-to-son transfer should not result in a reappraisal of that half for property-tax purposes if the transaction is reported properly according to your county's procedures.

Capital gains can be avoided to the maximum extent possible by passing the property on death, either by will or trust, the latter preferable because it also avoids probate. An estate-planning attorney can best advise the four of you on how best to maximize your long-term family results. That might include setting up a trust to pass the property and maybe some medium-term loans against the property if up-front cash is an objective.