My 42-year-old son will move home next month. I am 65 and thinking of downsizing. I would like to place him on the deed when he moves in and, after two years, sell my home. Since he is on the deed, will up to $500,000 be tax-exempt? I know that there could be problems with this arrangement. Is this possible and what are the drawbacks with this arrangement?
First, what do you mean that you will place him on the deed? Will you be selling the house to him, or just adding his name to the deed? If the latter, there are potential tax complications. This would be treated as a gift. The law is quite clear that the tax basis of the person giving the gift (the giftor) becomes the tax basis of the person receiving the gift (giftee).
For example, let's say you bought the house many years ago for $100,000 and now it is worth $500,000. Your tax basis is $100,000, excluding any improvements that you may have made along the way. If you give half of the house to your son, his basis becomes $50,000. If you then immediately sell it for $500,000, your profit is $200,000 (half of $500,000 less your basis). If you have owned and lived in the house for at least two years, you can exclude the entire gain and pay no tax. But your son did not live in the house for two years. His profit is also $200,000, but he would have to pay the IRS $30,000 (based on the current 15 percent capital gains tax rate) plus any applicable state or local tax.
Now let's look at a sale after both you and your son have owned and lived in the house for two out of the five years before sale. You sell it for $600,000. The tax basis for each of you is $50,000. You have thus made a profit of $250,000 each. In this scenario, both of you can claim the $250,000 exclusion of gain and pay no tax.
You have raised an interesting plan, but do the numbers before taking any action.
I used a Realtor to purchase my home 10 years ago. She represented me as a buyer's agent. I liked her very much and plan to use her again in the near future when I decide to purchase a new one. The Realtor, Sally, recently listed a house that I am interested in. The house went off the market for a short period of time and has reappeared with a new listing agent. Is it legal and ethical to hire Sally as a buyer's agent and have her provide me with information on the home I am interested in? Are there any limits as to what she can/cannot tell me about this property and owner's situation?
So long as the property owner now has a new real estate broker, it is acceptable for you to use the other broker as your "buyer's agent." She can discuss everything with you except any personal financial information she may have obtained during the time she represented the seller.
However, I am not a big fan of the buyer broker concept. Why not consider asking the agent to assist you, but she can be the selling agent. In other words, she will continue to be an agent of the seller but will help you in drafting the real estate contract.
This is the way real estate used to be sold. A seller listed the property with a listing agent and other agents brought potential buyers to the property. When a contract was finally entered into, the agent who presented that buyer was known as the selling agent.
My concern about the buyer broker concept is that there is always the concern that the agent — having learned information from the buyer (such as how much the buyer is prepared to pay for a house) — may telegraph that information to the seller (or the seller's agent), so as to earn the commission. This is not a broad-brush attack against agents (and I know I will get a number of complaints from brokers), but many buyers over the years have had these kinds of problems.
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