Author Topic: Paying my parents' mortgage  (Read 790 times)

franzelneekburm

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Paying my parents' mortgage
« on: July 14, 2019, 08:58:22 PM »
Hi All,

Hoping you can help me check my understanding of a couple of points.


Short version

Is there a scenario in which I can deduct the mortgage interest and property taxes paid for my parents' house, and not lose out on either their capital gains exclusion (if they sell), or my "step up" if I inherit it?


Longer version


My parents have a mortgage on their primary residence in California. They recently lost most of their income, and I need to take over the payments.

So, if we were to:

  • Refinance with a Tenancy in Common deed
  • I take a very small ownership share (say 2%)
  • I make 100% of the mortgage and tax payments (the latter also specified in the TIC)

Would that mean that:

  • I make the payments and have an "ownership stake" and can take both deductions (this would be my secondary residence)
  • The payments I make beyond the 2% are considered a gift
  • Should we sell, they can still take the primary residence exclusion on the 98%
  • Should I inherit it, I would still get the cost basis step up on the 98% (potentially inheriting their shares separately?)
  • I suppose the 2% would be a gift to me?
(There are many complicating details that I'm leaving out for the time being)


So, is that: a) not how any of this works, b) kinda hinky, or c) just fine?


I know the advice is usually "talk to a lawyer", and I intend to, but that's a somewhat longer process.

Much appreciated!

former player

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Re: Paying my parents' mortgage
« Reply #1 on: July 15, 2019, 01:56:05 AM »
You are making things very complicated.

The best answer is for your parents to sell the house they can no longer afford and find housing that they can afford.  It may take time for them to come to this conclusion: they certainly won't if you rush in like a White Knight and commit the next 30 years of your life (or however long is left on the mortgage) to working to keep them in a style they can no longer afford. 

If you cannot afford to pay off the mortgage in a lump sum now I also have sincere doubts about whether you can afford to make payments on it yourself.  And even if you think you can, your personal circumstances may well change over whatever period is left on the mortgage - if a future partner or children are in your thinking then being responsible for your parent's mortgage may negatively impact your future with them in ways that cannot be repaired.  And if your parents should die at any point when you are paying off their debts then the inheritance issues get particularly snarly, especially if you have siblings or other family members who will be expecting a part of your parents' estate - the calculations of 2% ownership plus mortgage payments plus equity amounts becomes essentially impossible.

So please think again and again before going down this route.




Sibley

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Re: Paying my parents' mortgage
« Reply #2 on: July 15, 2019, 06:38:19 AM »
OP, it's not just the mortgage. It's the mortgage, insurance, property taxes, utility, maintenance, and repairs. In addition to food, medical, and general living expenses. This is an impossible situation to me, and a bandaid is only going to make things worse in the long run.

Lmoot

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Re: Paying my parents' mortgage
« Reply #3 on: July 16, 2019, 02:50:39 PM »
OP, it's not just the mortgage. It's the mortgage, insurance, property taxes, utility, maintenance, and repairs. In addition to food, medical, and general living expenses. This is an impossible situation to me, and a bandaid is only going to make things worse in the long run.

This. I just spent  $12 grand on a sewer line repair and re-piping. That is several years of mortgage payment for me. If they canít afford a monthly mortgage payment, how are they going to afford the inevitable and expensive things that go wrong in owning a home? And now that you have stepped up to be the water bailer, who are they going to go to for every repair bill thatís $1000 or more?


August26th

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Re: Paying my parents' mortgage
« Reply #4 on: July 17, 2019, 09:08:24 AM »
What about a reverse mortgage? I donít know a lot about them, but they seem to be prime candidates for it. You didnít mention how much equity they have, but this could be a good move for them, and you can still inherit the home down the road.

GizmoTX

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Re: Paying my parents' mortgage
« Reply #5 on: July 17, 2019, 10:12:59 AM »
There is NO inheritance with a reverse mortgage & it is a terrible idea: The financing fees are exorbitant. When the owner resident dies or must move for assisted care, the house must be sold within a stated time period & the bank repaid, or the bank claims the house; renting is prohibited.

August26th

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Re: Paying my parents' mortgage
« Reply #6 on: July 17, 2019, 04:43:41 PM »
There is NO inheritance with a reverse mortgage & it is a terrible idea: The financing fees are exorbitant. When the owner resident dies or must move for assisted care, the house must be sold within a stated time period & the bank repaid, or the bank claims the house; renting is prohibited.


Not entirely true. The equity in the home (which is the difference between market value and what the loan is for) doesnít belong to the bank, so there technically CAN be an inheritance. And yes, there is a period of time (I believe it is 6 months) after the owner dies where the bank wants to get paid back... that doesnít seem particularly crazy to me. At that point, the heirs could refinance that loan into a traditional/forward loan if they didnít want to sell yet. Fees can indeed be high from what Iíve heard, but every personís scenario is different. Not sure Iíd agree with the blanket statement that it is a terrible idea over all, but maybe not the right one for the OPís parents. Or maybe it is? Not advocating for it... just stating that there could be options.