Tax Implications for Assuming a Mortgage in Washington ?

Ok, lets keep this simple. If your parents transfer the property to you and you assume the debt, then they have made a gift to you of $60,000. Each of them can use their annual donee exclusion of $13,000 so the first $26,000 goes to you gift tax free. If you are married and the property is going into joint names with your wife, then there would be another $26,000 gift tax free. The final $8,000 would be tax free but would use up that amount of your mom and dad's lifetime gift tax exemption of $1,000,000, so each would have a remaining exemption of 992,000 after the gift. So there would be no gift taxes being paid at the federal level. You need to check state gift tax implications with a WA lawyer. Also note that you would take a carryover basis for the property instead of the date of death value if the property goes to you at their deaths. Finally, go over all this with an attorney in your area. Hope this helps. If you think this post was helpful, please check the thumbs up (helpful) tab below. Thanks. LEGAL DISCLAIMER Mr. Fromm is licensed to practice law in PA with offices in Philadelphia and Montgomery Counties in the state of Pennsylvania. He phone number is 215-735-2336 and his email address is listed below. Mr. Fromm is ethically required to state that the response herein is not legal advice and does not create an attorney/ client relationship. Also, there are no recognized legal specialties under Pennsylvania law. Any references to a trust, estate or tax lawyer refer only to the fact that Mr. Fromm limits his practice to these areas of the law. These responses are only in the form of legal education and are intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received. By using this site you understand and agree that there is no attorney client relationship or confidentiality between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your jurisdiction, who is familiar with your specific facts and all of the circumstances and with whom you have an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question or omitted from the question. Circular 230 Disclaimer - Any information in this comment may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

The above attorney's analysis is spot on. You could implement the above plan but straddle two tax years and preserve the gift tax exemption. Since we are close the end of the year that might make some sense if you can wait that long. So, you'd do half of the transaction now and the other half in January. Assuming someone's mortgage doesn't necessarily cause a "sale" to occur, but it will cause taxable income for the person whose debt you are assuming. The relief of debt is taxable income under the federal tax code. There may be some exceptions but it is fact sensitive. Since the underlying property we are discussing is real estate, there is a Washington excise tax due on the transfer of real estate. The tax is going to be right around 2.3% or $6,200; however, if structured as a gift there will likely be an exemption and the tax won't apply, but the federal income tax discussed above is likely to apply due to the forgiveness of debt. Without knowing your parent's income situation it is hard to know what this amount might ultimately be, but my guess is that it would be substantially more than $6,200. To minimize all taxes you could do part sale and part gift. Disclaimer: This answer does not create an attorney-client relationship. The answer should not be relied upon as it does not comprise legal advice. Each situation is fact sensitive and one or two facts could change how the law applies to that situation. To fully understand how the law applies to your situation a thorough analysis of the facts and law should be examined in order to provide the correct conclusion.