A family member would like to sell me the home they have been renting to me and gift me the equity and also give me a 3% seller credit. They have owned the home for 14 months. Do they have to pay any kind of tax because of the residence/rental/capital gain issues?
You both should get some tax advice on how best to handle this proposed transaction. As stated, there could be capital gains issues, gift tax issues, income tax issues as well as county assessment issues, to just name a few.
I provided this response for informational purposes only, and nothing stated should be construed as legal advice specific to your situation since I have not been provided with all the facts and details. If you would like to consult directly with me, you would have to contact me privately for a consultation. Even then, I am not your attorney unless you and I sign an agreement to that effect. I am not licensed to practice law in any state other than California and this response is not intended to be considered as a solicitation of legal services. Please consider how much you have paid for this response before relying on it to determine your legal rights and obligations.
There are ways to structure this transaction to minimize income taxes for capital gains to your family member. There will be some transfer taxes to pay, but those are very little. The transfer may also reassess the property for property tax purposes, which may create a supplemental property tax bill.
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