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Gift of equity

My wife and I are buying my father-in-laws house that he lives in now. We are buying it for $145,000. We are using $40,000 gift of equity for a down payment.  The house is appraised at $215,000. Will my father-in-law have to pay any extra taxes because of the gift and for selling it for less than its worth. 

7 Replies

Gift of equity

There is gift tax form 709 for your father in law to file but the estate tax exclusion is so high he won’t owe taxes. The gift also comes with cost basis issues for you. All is explained here. 



Gift of equity

You might also want to read through the following Reg and its examples, @Dllwar:



Gift of equity

So basically what I have gathered is that he won't be paying any extra taxes from gift or selling lower than market? 

Gift of equity

Correct. This is his principal residence, presumably?

Gift of equity

Yes it is. 

Gift of equity

So, he shouldn't have any income tax liability on the transfer (assuming he's owned and lived in the house for 2 or more years).

Gift of equity

Okay, thank you. I appreciate it. 

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