Gift tax question

If you paid $300K for the house then your cost basis is $300K.

Makes no sense at all to want a cost basis of $150K for a $300K house.

You mean you got a basis of $300k, and took out a loan for $150k from that equity.

He has a personal combined exemption for estate/gift taxes of about $5.5 million. As longas the $150,000 gift to you added to his prior taxable gifts and the balance of his estate are under that amount, there should be no estate tax.

If it is a true gift (and based on the fact that it is a familial transfer it probably is), then there is no income tax on the cancellation of debt.

I understand that this forum is JUST advice, but it is advice I am looking for :-)

I bought a house from my wife's grandfather (arms-length-transaction confirmed)

1. I bought the house for 0k.
2. He owed 0k to the bank, and naturally, the bank was paid in full.
3. The remaining funds were then loaned back to me. I did this to establish a cost-basis of 0k for future sale of that house (and it was in-line with current market conditions) and get the cash back into my hands.
4. I now owe him a monthly loan amount to pay off the loan.

** The loan was set up to be fully forgiven upon his passing **

QUESTIONS:

When he passes: a. Would there be any estate tax on his estate? He has NEVER utilized any estate exemptions and has $0 to his name except for this asset.

b. Is the 'forgiven loan' considered a gift to me and would I have to claim it as income?

c. If so, would it be better to leave the money in his account and have it P.O.D (payable upon death) and then it would come to me tax free? ============ Note that the answer to this question may change after January 20, 2017. Trump plans to repeal the estate tax.

Technically, a receivable such as a loan is includible in gross estate. However, that assumes that the right to the loan passes from decedent to estate. As your loan evaporates on that event, its post-death worth would be zero. There's also the matter of the estate exemption which currently exceeds $5M. Therefore, there would be no tax.

A loan which is terminated by death sounds like an inheritance to you, so I don't see income tax attaching despite that cancellation of debt is normally taxable.

You may want other concurring opinions.