Purchasing Parents Home as 1st Rental Property

[Darsh Kumar]

I have been in talks with my parents about purchasing their current home and I'm renting at this time. Their mortgage is too high for them to afford but with my income/credit, I'd be able to purchase their property. The idea was to purchase their current residence and rent it out. With the $ my parents make on the sale from me, that $ would be transferred to my name and I would use that $ to purchase a new primary residence for them to live in and help reduce their initial mortgage payment. I'd have my first rental property, have 2 properties in my name, allow my parents to live rent free in a downsized home, improve my parent's financial situation. Win-win for everyone. My only question is the transferring of such a large sum of money from the sale my parents receive after I purchase their current home allowed or legal? Or does anyone have any better ideas than what I've discussed to get started and still help my parents out? Thank you!

[Kenan Heppe]

Hey Prashan,

I have good news for you! According to the IRS, in the year 2020, a person can give a tax-free gift of $15,000 each year to somebody. This means your parents can give you $30,000 and they do not pay taxes on it (15K per parent). If they give you more than 30K, they can simply deduct the remaining amount from their lifetime gift exemption. I'm assuming that, because they are in this financially distressed situation, they have not given more than 11.38 million dollars away in their life. 11.38 million dollars is the amount of money you can give away throughout your life without paying taxes on it.

So, if they want to give you 100K, you'd first subtract 30K from the yearly amount, and then deduct 70K from THEIR lifetime gift exemption amount. I'm not an accountant, but I've read a lot about this. So, don't take my word as final on this, but I believe I'm correct. Research lifetime gift exemption.