Legal Question in Real Estate Law in New Jersey

Buying home from mother

We are considering buying our home from my wife's mother. She owns 2 homes currently , her home and ours which are both 2 family homes located next door to each other. She needs a way to get more money to live on . We would like to buy the house at a 20 percent discount, say 240K, the house is possibly worth say 300-320 maybe even less in this market. Is there a legal/tax issue involved in getting such a discount. Also is the resulting 20% equity considered as a down payment when pursuing a mortgage ?


Asked on 3/24/09, 2:59 pm

1 Answer from Attorneys
Walter LeVine Walter D. LeVine, Esq.

Re: Buying home from mother

Normally, the discount is a gift. If the house would support an appraisal at its full value, I might consider the discount as a down-payment, for mortgage purposes. However, your MIL, in such case, would have to report this amount as part of the sales price in reporting the sale for her income tax purposes. By selling as a discount, she would have made the same "gift", but would only have to report the discounted amount as the sales price. This would save her some income taxes, but would reduce the sales price for your mortgage purposes. This is a decision that could involve about $9,000 in income taxes to your mother, or more, depending upon how long she owned the property, how she has been depreciating it, what her tax basis is for tax reporting and similar facts. I suggest she review the alternatives with her tax advisor and then make a decision on how best to handle this.

Read more
Answered on 3/24/09, 4:06 pm


Related Questions & Answers

More Real Estate and Real Property questions and answers in New Jersey