Title change on property from resident alien parents to US citizen son

We're trying to figure out a way to transfer the title of my parents home to their children with minimal tax consequences. My parents are both elderly and have lived in the US for 40+ years, but have remained
non-US citizens with permanent green cards. They don't currently live in the house - it's rented. We handle all their affairs - and want to take ownership of the house and have legal title - but are not sure what the tax consequences will be. It's worth about $500,000. Could a trust be set up? Would that help?
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What are you trying to accomplish (qualify parents for property tax reduction or Medicaid, give children control of property, etc)?
If the children wait to inherit the property, they will get a stepped up basis and save taxes in the long run.
Was the property the primary residence of the parents before it was rented? If so when?
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2:34pm 2/28/09
Charles M. Shanes, CPA
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is to leave it to you when they die. Any other way of transferring the property could increase either their or your income tax and/or estate tax.
Stu
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wrote:

We'd like to get some of the equity in the house out, since we are helping to support our parents - all their $ is in the house and they live basically on SS and pension income - which is not enough. House has been rented fro the last year.
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You can accomplish that without a transfer of title. Checked into reverse mortgage?
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Yes, you have to be living in the home - it's currently rented.
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snipped-for-privacy@gmail.com wrote:
...

For commercial products or insured...is that mandatory if it were privately financed (ie, you)?
I don't know, the concept was what struck me, too, as the way as otherwise taxwise seems wisest to take advantage of the step up in basis.
Other than that, session w/ qualified elder planning counselor would seem probably to be worthwhile investment.
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In misc.taxes.moderated, dpb wrote:

I agree. It would not be a HUD or FHA reverse mortgage, but I think a bank would probably let you borrow out a lot of equity given these facts. I would talk to some smaller banks regarding this. As long as you are planning on borrowing less than 50% of the equity, I would see this as attractive to a prudent banker. But I am just speculating.

Some do this to sequester assets from means testing.... :-(

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DF2 wrote:

...
As was I; the question would be whether it can be structured as a valid reverse mortgage to ensure payments aren't taxable, etc., ...
I didn't see anything in a _very_ quick perusal of IRS Pub's that would seem to prohibit it, but...
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Are payments not taxable for a reverse mortgage? I hadn't heard that, and if it's true it's one of the few benefits of having one. Most of the reverse mortgages I've seen are not financially good deals, though they are appropriate for some people under some circumstances.
Instead of a reverse mortgage what I've done in a few cases is to retain a life estate and sell the remainder interest. You can probably get more money than with a reverse mortgage. If you can find someone to buy the remainder interest, that is.
Stu
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Stuart A. Bronstein wrote: ...

From Pub 554 that seems to be so. I've not investigated more thoroughly than the one section there nor looked back to underlying rules/law so caution still advised.
...

In a situation such as posed by OP, the son may be willing altho there's again the loss of any basis step-up on down the road. And, of course, there's certainly less of a guarantee to the parent(s) if something goes wrong in the financial standing of the son that can't continue to make payments so would seem from their standpoint would want him to make whatever arrangements required for the buyout independent of them.
All in all, somebody local w/ knowledge of the overall situation and objectives and the right experience in elder planning, etc., still seems OP's best bet to me.
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Right - because with a reverse mortgage any payment you get is really a loan, so it's non-taxable.

One thing that OP can do to preserve some of the step-up in basis is to purchase the house from the parent at current market value. The note would be set up so that payments would amount to $13,000 per year per buyer, or less. Parent can then foregive the payments, and foregive any balance when he dies.
The downside of this is that either the parent or child will have to recognize income with respect to the [imputed] interest on the purchase price.
Stu
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