Tax Implications for purchasing a home for our daughter after her divorce

[jarvfam01]

Our daughter is in the process of a divorce. We expect it to be finalized sometime this year. Purchasing a home with a mortgage is an excellent way for her to build credit in her name, but we do not believe she can afford to purchase a home based upon her income. Once the divorce is final, we are thinking of buying a house for her and her children but are unsure which approach is best for her and us from a tax standpoint.  Should we simply co-sign a loan that is in her name, should we include ours and her name on a mortgage loan, or should we pay cash for the house and address the purchase in our estate plan/will?  Our hope is someone can offer an opinion of what is everyone's best long-term interest.

[Bsch4477 · Accepted solution]

Financial planning should consider all of your financial assets and goals. You would do well to consult a certified financial planner who can do that rather than relying on anonymous posts from individuals with unknown credentials. 

[jarvfam01 · Accepted solution]

Bsch4477,

Thanks for your input.  We've had brief discussions with our financial advisor, but will have more intense discussions when once the divorce is final to look at the tax implications of all options presented.

[RobertB4444]

In order to do the thing that is best for your daughter you would buy this for cash as a second home and then leave it to her in your will.  You will get a deduction for paying the taxes on it every year - of course, that means you'll pay taxes every year - and then when you pass the house will transfer to her debt free at an increased basis so she won't owe any taxes on it if she sells it.  

The best for you would be to either co-sign the loan or buy it and then sell it to her at a monthly rate that she can afford to pay.

But as @Bsch4477 points out there are a lot of moving parts here that you don't know and can't tell us here.  What are the odds that your daughter will stay in the house?  Can she afford even the taxes?  What if she gets a job offer somewhere?

There are lots of options here.  It would be a good idea to sit down with your daughter as well as a financial advisor.

@jarvfam01