Gift of equity

[Huy Nguyen]

Hello group! im new here and this is my first post! 

I have a question in regards to gift or equity.

My parents have a house they wanna get out of a payment. 
They owe 68k, it does need some work, I’m willing to put in the work to bring the value up if I can get it back on the gift, it should be worth about 200k, the house next door sold for 225k.

How does gift of equity work? I don’t want to buy it at market price. 

Thanks!

[Bill B.]

Your basis will be what you pay them for it. So you’ll owe taxes on any amount you sell over $68k minus capex. They can sell tax free (assuming it’s their primary home). Assuming you love your parents, and aren’t trying to profit off them. Fix it, still in their name, have them sell it tax free, and reimburse you for the cost of fixing it up. Maybe give you a gift of some of the additional gain. Thereby keeping the government’s hand off your family’s money. 

If it’s not their primary, that’s still how I would handle it as they’re going to owe depreciation recapture even if the IRS lets them out of the capital gains. (I don’t know if the would, talk to your CPA.) but as stated above, you will then owe those taxes.