Advice on buying parents house

[Victoria Britton]

Hello,

We are new here and happy to be part of the community! 
My husband's parents (55+) are moving to another city (Temecula, CA) and are selling their home in Riverside, CA, valued at $915K. We love this house and want to buy it. They are very generous and want to help us with the mortgage. We can only qualify for $415K, so the idea is to "leave" or "keep" $500K in equity and have only a $415K mortgage. The parents would need the funds from the 415k mortgage to fund renovations on their new home, among other things. The Temecula home already closed escrow.

What's the best way to structure the deal so we would own the Riverside house, and we both limit our tax burden? I understand we would need an attorney for concrete answers but are open to initial ideas. I've heard of ideas of "gift of equity," "cash out refinance," and "proposition 19." Ideally the parents want to use prop 19 to move their tax basis to their replacement property (worth 925k). Would we somehow also be able to benefit from preposition 19's parent to child transfer?

Thank you for your help!

[Sam M.]

Is it possible to have your parents deed the house to you and keep the tax basis. Look into it. If you buy the house from them, it will be reassessed at current value. If the purchase price is very low, the county will use market value and your annual property taxes will be $23K per year. You could assume their loan but this depends on what they still owe. Just some things to think about. It would help to know what the current mortgage balance is and the assessed value of the home (what do your parents currently pay in property taxes). If they purchased the house 2 or 3 decades ago, then they are probably paying far less than $10K in annual taxes. It would be a shame for the transfer to occur as though you are not parent / child and lose the opportunity to keep a low tax basis. Read Publication 800-1 on www.boe.ca.gov