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Need some help ref a real estate transaction....

RVR2SNO

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Need some help quarterbacking this...

In short, my mother-in-law (single) is selling her house, paying off my loan/buying mine and moving into my house, and we're buying a house down the street.

My MIL plans to sell her current house. Estimated value is $650,000. House is paid in full. Prop 13 taxes; less than $1,000 annually. The house is in my MIL’s trust.

MIL would then 1) pay off my loan or 2) we'd sell to her for the principal loan balance, which is less than $650,000, and she'd move into my current house. Estimated value is $825,000. Taxes are about $7,700 annually. The house is currently in my family’s trust.

My wife and I would then buy a larger house literally down the street and we have enough in savings to cover the down payment.

Questions....
  • Will MIL have to pay capital gains tax if she buys my house or pays off the loan. Trying to avoid her paying CG taxes.
  • Can she transfer her Prop 13 taxes? <$1,000 is better than >$7,000, obviously.
  • Is it possible to keep my current house in my trust? Or should I sell it to her and then quitclaim it to my trust afterwards?
Trying to figure out how to orchestrate this transaction. I need to schedule an appointment with my accountant and real estate attorney, but figured I'd post here.
 

78Southwind

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Some things to think about...

What is the MIL's homes basis? Price paid for the home plus any upgrades. Did her spouse own the home with her at one time and pass away stepping up the basis?

Are you giving your MIL a gift of $175,000 (home value $825,000 - loan $650,000 = equity $175,000)?

If you're located in CA, look up California Proposition 19 and see if your MIL is eligible (April 1st, 2021).

I am not sure what your planning needs are with your MIL's new home (your old home). If the MIL passes are you going to sell, rent or move back into it? Research an irrevocable trust called "qualified personal residence trust" (QPRT). However, when the MIL passes away the home will step-up in basis so if you are just looking to sell the home after she passes you wouldn't need an irrevocable trust.
 

RVR2SNO

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Some things to think about...

What is the MIL's homes basis? Price paid for the home plus any upgrades. Did her spouse own the home with her at one time and pass away stepping up the basis?

Are you giving your MIL a gift of $175,000 (home value $825,000 - loan $650,000 = equity $175,000)?

If you're located in CA, look up California Proposition 19 and see if your MIL is eligible (April 1st, 2021).

I am not sure what your planning needs are with your MIL's new home (your old home). If the MIL passes are you going to sell, rent or move back into it? Research an irrevocable trust called "qualified personal residence trust" (QPRT). However, when the MIL passes away the home will step-up in basis so if you are just looking to sell the home after she passes you wouldn't need an irrevocable trust.
MIL inherited the house. Her mom was the original owner from 1950.

Will look into Prop 19.

Plan is to keep the house and rent it after my MIL passes. My wife is an only child so she'd inherit it and we'd add it back into our trust.
 
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