Can You Buy Your Parents’ House? Yes, You Can!
Buying a house is a dream for many, and for some, that dream extends to buying their parents’ house. While it may seem like a daunting task, it is actually possible to purchase your parents’ home. In fact, there are many financial benefits associated with this decision. From tax limits and gifting equity to avoiding capital gains taxes, there are various ways to make this purchase a reality. Let’s dive into the steps, tax rules, and gifts of equity that can make buying your parents’ house a possibility.
Step 1: Determine if it’s feasible
Before you jump into the process of buying your parents’ house, it is important to determine if it is feasible. This means considering if your parents are willing to sell, if the house is in a desirable location, and if it is within your budget. It is also necessary to consider the future needs of your parents and if the house will be suitable for them in the long run. Once you have all these factors in place, it’s time to move on to the next step.
Step 2: Get professional help
Buying a house is a big financial decision, and purchasing your parents’ house is no different. It is essential to seek professional help from a real estate agent and a lawyer who can guide you through the legal and financial aspects of the process. They will also be able to provide you with valuable insights and advice on how to navigate through the potential challenges of buying your parents’ home.
Step 3: Understand tax limits
One of the main considerations when buying your parents’ house is understanding the tax limits involved. According to the current IRS regulations, you can gift up to $19,000 per year without incurring any gift tax. This means that if both of your parents are selling the house to you, they can gift you up to $38,000 without any tax implications. This amount can be used towards the down payment of the house, making it more affordable for you.
Step 4: Consider a gift of equity
A gift of equity is a transfer of ownership from the current owners (your parents) to the new owners (you), without any money exchanging hands. This means that your parents can gift you the equity in the house that they have built over the years, and you can use that as part of the down payment for the house. This option can be extremely beneficial for both parties as it can reduce the cost of the house for you and eliminate the need for your parents to pay capital gains tax.
Step 5: Avoid capital gains taxes
Another significant benefit of buying your parents’ house is avoiding capital gains taxes. When you purchase a house, any gains made upon its sale are subject to capital gains taxes. However, if you buy your parents’ house, you can avoid these taxes as long as the equity in the house is less than $250,000 for single homeowners or $500,000 for married couples. This can result in significant savings and allow you to use those funds towards other expenses related to your new home.
Step 6: Get a home inspection
As with any home purchase, getting a home inspection is crucial to ensure that the house is in good condition and there are no hidden issues. A thorough home inspection can also help you negotiate the purchase price and address any repairs or maintenance that may be required. It is always better to be safe than sorry, and a home inspection can provide you with peace of mind and save you from any potential future expenses.
Conclusion
Buying your parents’ house may seem like a complicated process, but it can actually be a financially viable option. From tax benefits and gift of equity to avoiding capital gains taxes, there are several advantages associated with this decision. It is essential to seek professional help and thoroughly understand the tax rules and limits involved to make this purchase a success. With careful planning and consideration, you can make your dream of owning your parents’ house a reality.