Legal Question in Real Estate Law in New Jersey

Re: Buying a house from a relative

I handle many transactions of this nature as a real estate attorney, and title insurance agent. You can have an attorney draft a mortgage and note, or an installment sale agreement between you and your uncle. There will be state transfer taxes to actually convey the property, but if your uncle resided in the property for six years, he will be exempt from federal capital gains tax up to 250,000. of his gain. Depending on what he paid for the property, he might have some capital gains liability.

I suggest that you contact a real estate attorney. If you are in Southern New Jersey, I would be happy to assist. Please feel free to contact me at (215) 564-3722.

Re: Buying a house from a relative

I agree with Steve, with some additional comments. The sale can be structured as an installment sale for your uncle, who is providing the financing. There will be imputed interest on the mortgage, at the IRS minimum, which can be considered a gift (therefore not subject to income tax nor a deduction by you) to the extent of the annual gift tax exclusion (currently $11,000 per year per donee). If you are married, he can double that by gift to you and your wife. He can also consider, if available, his lifetime exclusion (currently $1,000,000) for any interest imputed that exceeds the annual exclusion amount. This will save him income tax on the imputed interest amount. You do not say what his potential gain is on the house. Presuming it exceeds the allowable amount ($250,000), any excess would be taxed as a long-term capital gain ratably with your annual payments. Other than the tax ramifications, the transaction would be like any other home sale/purchase, with closing costs payable by the traditional party responsible for them (like realty transfer fee payable by seller, cost of his mortgage documents being paid by you, title searches paid by you, recording fees paid by you , etc.). I can assist you or him in the transaction if you need an attorney familiar with these types of transactions and/or the tax laws involved on the sale of a home by installment sale.