Legal Question in Real Estate Law in Maryland

Re: Re: Adding name to deed

By putting your name on your parent's deed, I assume you are not paying them anything, nor are you assuming any responsibility for the mortgage. Thus this transfer becomes a gift. Your parents could become liable for the federal estate and gift tax if their assets are extensive.

In addition, you acquire your interest in the property at the same basis that your parents did. Let's assume they bought it for $50,000 25 years ago and have added 20,000 in improvements. Their basis for tax purposes is $70,000. Let's say the house is worth $150,000 today. If you acquire 50% by virtue of a gift, and the house is later sold for $150,000, you will owe capital gains taxes on $40,000 (1/2 of $150,000-70,000).

If you're living in the house, but only are co-owners with your parents, you can only deduct half of the interest payments. Also, since you are paying the mortgage, your county will impose a transfer tax when you go to record the deed. Using a trust does not effect the mortgage company's right, if it sees fit to do so, to enforce the "due on sale" clause in the mortgage, which gives them the right to demand payment of the mortgage in full upon transfer of the property. But they won't do this as long as the payments are timely.

Robert Sher

Wagshal and Sher

5530 Wisconsin Ave-Suite 1200

Re: Re: Adding name to deed

That's what you get when you get legal advice from an accountant.

The serious tax consequences are that if you receive a gift of the property while your parents are alive, your basis in the property is their basis -- i.e., their purchase price. If you inherit the property, there is an automatic step-up in basis to fair market value. The difference can be huge, and if the property is subject to capital gains tax when you sell it, it can result in a large difference in your tax bill. This is not to say don't do this, but simply to make sure you know the consequences of what you are doing.

You are right that the mortgage company MAY not know that your parents deeded the property, thereby bringing the whole balance immediately due, but is it worth the risk? Perhaps you could refinance the loan at the same time, becoming personally liable on a new loan, to avoid the default.

The bottom line is that you need to consult with a lawyer who can properly advise you in light of your particular fact situation.

Daniel Press

Chung & Press, P.C.

6723 Whittier Ave., Suite 302