Selling your home to a family member can be an easy way for both parties to save money and time. Unfortunately, there are a few pitfalls that many sellers overlook. For example, reducing your asking price can put you or your family member in a difficult tax situation in the future. Here are some tips to navigate potential issues for a successful sale.
Consider the Pros and Cons
It's easy to see the advantages of selling your home to your family: you can avoid the real estate
agent's commission, close faster, and avoid showings. Be sure you consider the downsides as well. Are you prepared to potentially risk your relationship if issues come up with the home? Are you willing to sell the home at or near market value or face potential tax consequences? You should still work with a real estate attorney to make sure the sale is done properly and get a broker price opinion from an agent to avoid problems. A real estate agent can give you a price recommendation based on comparable Irvine homes for sale to help you price your home effectively.
Consider Tax Issues
There are a few ways in which taxes can cost the buyer or the seller a great deal of money when the home is sold to a family member. If you plan to do a seller-carried mortgage for a loved one, keep in mind the IRS will calculate "imputed interest." This means that, even if you do not charge interest on the loan, you can be liable for "phantom" interest income.
It's also a good idea to think twice before selling the home at a steep discount. If your loved one sells the home too quickly, he or she can be hit with a huge capital gains tax. The IRS can also hit you with a gift tax if the home is priced too far below market value.
A Quitclaim Deed May Be a Good Compromise
Rather than selling the home directly to a loved one or using a seller-assisted mortgage, a quitclaim deed may be a more convenient option. You can choose to have a quitclaim deed made to add your family member's name to the home title. This allows your family member to take out a second loan and make payments to you. The downside to this option is you will still be responsible for the mortgage and other liens on the property.
Get an Inspection
Many people assume they don't need an inspection when they buy a home from family because they think the know the home's condition. When problems turn up later, buyers can feel cheated and it may cause damage to the relationship. It's always a good idea to get an inspection to spot necessary repairs and problems. If your family member wants to get a conventional mortgage, this will be required anyway.
Have the Home Appraised
Getting an appraisal is the best way to ensure the buyer and seller both get a good deal. An appraisal will give you an updated estimate of your home's market value. This can help you determine how much (if any) discount you can afford on the property. You can also use the home's appraised value to estimate and avoid gift taxes.
Author: April Lavine is the current Managing Broker of Irvine Residential Living and she has the complete knowledge of homes for sale in Irvine.
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