Legal Question in Real Estate Law in California

Re: Irs says gift tax

Why would you seek tax advice from the IRS? That would be like asking the police or DA what to do after an arrest (some people do this as well). See a tax lawyer.

Re: Irs says gift tax

The IRS opinion given based on a phone call is lowest-common-denominator, cover-your-rear opinion of the clerk you spoke with; easy to give, won't get him fired.

A careful analysis of your facts by a lawyer, or even a conscientious IRS examiner, should produce a different result.

If the facts show there was no gift, the IRS will not be entitled to exact a gift tax.

Another possible concern is that the house purchase transaction might have involved a little deception on the lender, but if all turns out well and the lender gets paid off, I don't think anyone is gonna holler fraud.

Re: Irs says gift tax

All three attorney's gave you good advice. But there are 2 obvious impolite questions that stand out: why do you want to pay off the mortgage unless you now can get one at a much better interest rate; how healthy is your stepdad as from a tax standpoint the best solution is your inheriting the property [no taxes if his estate worth less than a million, no taxes to you, stepped up basis to avoid capital gains tax on the appreciation]. Also, have you been deducting the mortgage interest you pay from your taxes? Technically you should have been paying rent to your stepdad who would have to report it as income and could offset his taxes by the interest and some other house payments.

Your need to go to a tax expert because of all the problems we have pointed out and because there probably more. However, do not get excited; the IRS will at most make you pay some additional money, they will not haul you off to jail in your bathrobe at 6 a.m.

Re: Irs says gift tax

Why in the world are you asking the IRS about this? Although there are different ways to handle this, you may not want to pursue them. Since he is your step dad, there is no exclusion from property tax reassessment upon transfer, and the county will increase your taxes immediately upon a transfer to you from your step dad--if the house is worth $450,000.00 per year, your annual property taxes would approximate $5,400.00 per year if put in your name.

Also, because you would not have anything but for your step dad's credit, I can see why the IRS would characterize it as a gift--the fact that you have paid taxes, insurance and mortgage payments is irrelevant since you would not have been in a positon to do so, nor be able to claim an interest in the house, but for your step dad's willingly to help you. Go to an attorney and see about entering into a "land sale contract"; in this type of transaction title does not transfer until the loan is paid off, but you will get protection from a transfer or sale by your step dad to someone else.