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Profile picture for vincentli1

Pay off mortgage $375k left

Hi there
      Im hoping to get some real and confirmed info on how to do this legally? I got $375k left mortgage left with Bank of America. I got rich relatives who can help me pay if off or at least pay like 150k next year and another 150k 2015 and the rest in 2016. How can they do this for me? My first thought would be this - have them write a check directly to Bank of America with my mortgage account #  and the home address on the check. Say here you go Bank of America 150k. I think this is probably the best because it doesn't even go through me. However, I just don't know if there is any limit on how much can a relative pay for your mortgage each year. They don't mind paying 200k. And how will I file tax for that? Or I don't even need to file any tax for it? And will this affect my relative. Do they need to file tax for it?

      I'm sure a lot of people know this method. Each person can donate $14000 to me each year and those are tax free gift. But thats the max they can donate each year. So I guess I can have like 10 relative and friends donate $14000 to me and Ill pay Bank of America immediately after I got it. Or I can just have them write a check to Bank of America directly just like the above method. This method is for sure works and its tax free for both of the gifter and me. I also heard that there is no limit for how much I can receive each. However, there is a form I need to fill out if its over 100k per year but it will still be tax free.

 
  • December 29 2013 - San Francisco
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Answers (5)

Profile picture for wetdawgs
I'm not understanding your logic.

Imagine there are two houses, house one worth $800k and house 2 worth $600k for a total of $1,400,000.   All these numbers are imaginary. 

If you owe  $375 k on the $800 k house (#1)  and $600 k on the $600 k house (#2), for a total owed of $975 k.

If your rich relatives give you $375 k you can either pay off house #1 and owe $600 k total between the two houses.
Or, you can pay $375 k on house 2 (so you owe $225k on it)  and still owe $600 k total.    In other words, it doesn't  matter which house you throw the $375k, the total owed between the two houses will be the same.

What does matter is if you use $375 k to your house, someone will owe gift taxes.   Then, when you give money to your parents from a loan, you'll owe gift taxes so you are proposing to trigger two rounds of gift taxes.

But, the next bit that isn't making sense is you want to buy a house for your parents in their name, rent out your house but somehow didn't mention that you need a place to live.

Note: none of my calculations take into account interest rates.

  • December 29 2013
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Profile picture for vincentli1
I did some calculation....If all the money go to the new house and Im still paying for this one. It will be double mortgage. This is including property tax and insurance is $2700 a month. If this one is paid off, I still need to pay property tax and ins = $650 a month. 

If I use that $375k to buy a new one. And the house price gone up a lot nowadays close to 700k a piece. Ill be paying $3300 a month or something.

My best approach is this = Pay this one off first. Rent the whole house out since its near SF State U. Very easy to rent out. Total rent probably be $4000 a month. Basement is in use and getting $1300 a month now. Upstairs will be split into 2 parts cuz its actually quite big. 1 = 1500 including master bath 3 rooms together. 2nd part is huge living room and dining room = $1200 for sure will be rented. 

Therefore, I can have $4000 to cover the 2nd one probably with a lil extra in the pocket too. I mean Im not a big financier or very smart investor but I can do what I can do the best with the best brain power I can have. 
  • December 29 2013
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Profile picture for wetdawgs
If you have rich relatives who wish to help you pay off your loan, and then you wish to borrow money from your home to buy your parents a home - why not simplify the steps and have the rich relatives buy your parents a home?    Gift taxes are also likely to be triggered if you buy your parents a home.

  • December 29 2013
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Profile picture for vincentli1
 3. There is another question I may as well ask here now. If my house is paid off and value gone up some. The current value is around 800k. It was 560k when I bought it. I built a legal unit in the basement. Paid the city for the blue print. 2 beds 1 bath 1 living room. Thats another 60k. So the total value is 800k now. So if this house is paid off. Can I take a huge equity line of loan out of it. And buy another house NOT under my own name but under my parents name. I don't wanna have 2 houses under my name. I want my parents to have one in Daly City or San Francisco again. But 80% of 800k is all I can take out right for the equity line of loan? so its only 640k, thats not enough for get in a good neighborhood in SF tho. I also heard that they don't even the built units so it may only be 80% of 750k = 600k only. I guess I can still get a beaten up house in Daly City for under 600k and Ill fix it up on my own.
 
  • December 29 2013
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Profile picture for wetdawgs
The gift limit of $14,000 isn't a hard limit, simply if one gets a gift bigger than this amount then the person giving the gift has to pay gift tax on the money (which  can be significant).

Having the relative write a check to Bank of America for your mortgage does not get around the gift tax issues because it is paying your mortgage.

You and your rich relatives should talk to a tax accountant to get the details so you can do it with minimum tax impact to the relatives and you.





  • December 29 2013
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