Author Topic: Buying sibling's half of inherited house  (Read 2823 times)

Purplecow

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Buying sibling's half of inherited house
« on: November 16, 2019, 09:01:57 PM »
Edited since my previous post was misunderstood.

My brother and I just inherited our mom's house.  The house was held in a trust with my brother & I as equal beneficiaries.  My brother doesn't want the house and has agreed to let me buy him out.  We've agreed on the amount I would pay him.  The attorney at the title company said we would have to do a deed of distribution to get the property into our names equally which makes sense but then he said we would do a deed of gift to put his half in my name.  This doesn't sound correct to me since I am paying him for his half of the property. I'm trying to get some clarification from the attorney on it but have been able to reach him yet.  I'm thinking a quit claim would be what we would need, not a deed of gift.
1.  Does anyone know why a deed of gift would be used if I'm paying him?
2.  IF a deed of gift is the correct document to use I would have to claim that as a gift on taxes, correct? 
3.  IF we did a quit claim how would I list that on taxes?  I'm guessing I would have to list half a house as inherited and half as purchased.
« Last Edit: November 29, 2019, 07:43:02 PM by Purplecow »

Lago

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Re: Buying sibling's half of inherited house
« Reply #1 on: November 17, 2019, 11:21:21 AM »
I'm sure the title attorney who knows your situation is giving good advice. You could also ask a CPA or post this on The Wealthy Accountant private facebook group.

I think you should split the house evenly with your brother at market value. Market value should consider the repairs needed. Get it appraised by 2-3 appraisers and average the appraisal amount to get the "market value". This is what your mother intended when she made you equal beneficiaries.

SunnyDays

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Re: Buying sibling's half of inherited house
« Reply #2 on: November 17, 2019, 05:25:22 PM »
What did your mom want done with her money?  Can't you just split that too, then pay your brother the remainder he would be due from the house out of your own money?

Dicey

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Re: Buying sibling's half of inherited house
« Reply #3 on: November 18, 2019, 10:55:42 AM »
I'm sure the title attorney who knows your situation is giving good advice. You could also ask a CPA or post this on The Wealthy Accountant private facebook group.
To the first sentence: "Noooooooooooo!" It ain't necessarily so. The first three people we consulted about our parents' estate gave us an unfavorable answer. We persisted and found someone who was willing to walk us through all the necessary steps. It helped that he had actually worked for the IRS for many years. Just because it's not the easiest route doesn't make it wrong. Get more than one opinion.

Therefore, I heartily second the second sentence above.

ericrugiero

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Re: Buying sibling's half of inherited house
« Reply #4 on: November 19, 2019, 07:30:31 AM »
My brother and I just inherited our mom's house.  The house was held in a trust with my brother & I as equal beneficiaries.  My brother doesn't want the house and has agreed to let me buy him out.  We've agreed on the amount I would pay him.  It's considerably less than what half of the market value is but we decided it was fair given the amount of work that needs to be done on the house and the fact that he is basically the cause of the needed repairs.  I intend to fix up the house and rent it out but might sell if the market is right.  I  was thinking I would give him the money from mom's bank account and he would quit claim the house to me.  The title attorney said we would have to do a deed of gift.  I'm concerned how a "gift" would impact my taxes and don't quite understand why it would be a gift if he received cash in exchange for his share.  Now I'm thinking it might be better if we made a sales contract and paid him from my account but also don't know how that would look on taxes.  Any insight on how this would work would be greatly appreciated.

Get a second opinion.  Based on my limited knowledge, the inheritance should be tax free (under a limit of several million dollars).  You would only pay taxes on any appreciation or gains that happen after you own the house or money.  If you gift your brother a bunch of money anything over $15,000/year is subject to taxes (paid by you).  If he gifts you half a house, there are probably similar gift taxes (paid by him).  You should be able to split the cash and then you pay market value of his half the home without paying taxes. 

Again, my knowledge is limited but based on what I think I know you could be setting yourself up for quite a bit of extra tax by doing this as a gift.   

Purplecow

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Re: Buying sibling's half of inherited house
« Reply #5 on: November 19, 2019, 12:11:57 PM »
My brother and I just inherited our mom's house.  The house was held in a trust with my brother & I as equal beneficiaries.  My brother doesn't want the house and has agreed to let me buy him out.  We've agreed on the amount I would pay him.  It's considerably less than what half of the market value is but we decided it was fair given the amount of work that needs to be done on the house and the fact that he is basically the cause of the needed repairs.  I intend to fix up the house and rent it out but might sell if the market is right.  I  was thinking I would give him the money from mom's bank account and he would quit claim the house to me.  The title attorney said we would have to do a deed of gift.  I'm concerned how a "gift" would impact my taxes and don't quite understand why it would be a gift if he received cash in exchange for his share.  Now I'm thinking it might be better if we made a sales contract and paid him from my account but also don't know how that would look on taxes.  Any insight on how this would work would be greatly appreciated.

Get a second opinion.  Based on my limited knowledge, the inheritance should be tax free (under a limit of several million dollars).  You would only pay taxes on any appreciation or gains that happen after you own the house or money.  If you gift your brother a bunch of money anything over $15,000/year is subject to taxes (paid by you).  If he gifts you half a house, there are probably similar gift taxes (paid by him).  You should be able to split the cash and then you pay market value of his half the home without paying taxes. 

Again, my knowledge is limited but based on what I think I know you could be setting yourself up for quite a bit of extra tax by doing this as a gift.   

That's what I was thinking....It's not a gift.  I'm giving him money in exchange for his share of the house.  It was the title company that suggested it needed to be done as a deed of gift but I don't think that is correct.  We are also splitting everything else she had but that's irrelevant.  There are no gifts between us.  I've sent an email to the title company to explain it and am awaiting a response.  It just didn't sound right to me.

Car Jack

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Re: Buying sibling's half of inherited house
« Reply #6 on: November 19, 2019, 12:29:50 PM »
I've seen so many posts like this.  To me, there's just too much risk that someone is going to feel ripped off and bad feelings come about.  Just sell the dammed house and be done with it.  If you want a house to fix and/or rent, go buy another one.  That way, there's no entanglement with family.

Just my 2 cents worth.

Sandi_k

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Re: Buying sibling's half of inherited house
« Reply #7 on: November 19, 2019, 02:23:00 PM »
The title to the house should be transferred to you both as tenants in common, 50/50 ownership.

Then you write up a purchase agreement, and you buy it from him. You can do so with cash you inherited, or by getting a mortgage.

No taxes, no gains, no gifts. And a legal record of everything.

StashingAway

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Re: Buying sibling's half of inherited house
« Reply #8 on: November 27, 2019, 07:22:09 AM »
I've seen so many posts like this.  To me, there's just too much risk that someone is going to feel ripped off and bad feelings come about.  Just sell the dammed house and be done with it.  If you want a house to fix and/or rent, go buy another one.  That way, there's no entanglement with family.

Without knowing the family dynamics, I'd agree with this. The odds are not in favor of it working out amicably.

Purplecow

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Re: Buying sibling's half of inherited house
« Reply #9 on: November 27, 2019, 08:53:35 PM »
Thank you all for the responses.  I have to say that I didn't expect all the negativity.  For the record, no one is getting ripped off.  I'm doing exactly what my mom told me we could do with the property....was just looking for advice on what document was needed to accomplish it. 

Dicey

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Re: Buying sibling's half of inherited house
« Reply #10 on: November 28, 2019, 09:28:40 AM »
Thank you all for the responses.  I have to say that I didn't expect all the negativity.  For the record, no one is getting ripped off.  I'm doing exactly what my mom told me we could do with the property....was just looking for advice on what document was needed to accomplish it.
1. That's not entirely clear from your original post, which I just re-read to be sure of my original impression.

2. The possibility exists that down the road, when you've done the work and the house looks great and is worth a lot more than at present, your brother might feel like he got the short end of the stick. Many of us have more experience with the whole estate settlement process and family drama that often ensues. We are freely offering you the benefit of our experience.

3. You specifically asked for "any insight". If the phrase in bold above is what you truly desire and nothing else, I suggest you modify your original post or start a new thread with a more specific question. There are a lot of good people willing to share advice based on their personal knowledge/experience, but they can only see what you write, not what you are thinking.

I'm sorry for the loss of your mom, and I wish you the best of luck as you work through your grief and the settlement of her estate. Keeping your relationship with your brother healthy is the most important thing.

Purplecow

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Re: Buying sibling's half of inherited house
« Reply #11 on: November 29, 2019, 07:45:39 PM »
I have edited my original post since my questions were misunderstood.