- August 9, 2023
- Posted by: legaleseblogger
- Category: Related News
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Title: Finding the Best Approach for Obtaining a Loan to Address Home Renovation Needs
Introduction:
The situation at hand involves the need to rewire the home and carry out cosmetic fixes, which will require an approximate loan amount of almost 30k. As the property is currently under my father’s name and he has a lower income compared to mine, it raises the question of whether it is advisable to transfer the house into my name due to potential tax-related issues. Additionally, considering that the property is a two-family home with rental income, there may be possibilities for deducting renovation expenses. The aim is to explore the most beneficial approach for obtaining the loan while taking into account these factors.
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To navigate the complexities of the situation, the AI Legalese Decoder can prove to be a valuable tool. By employing this advanced technology, you can gain a clearer understanding of the legal implications associated with transferring the property or taking a loan, highlighting potential tax benefits or disadvantages. The AI Legalese Decoder utilizes sophisticated algorithms to simplify legal jargon, making it easier for you to make informed decisions.
Approach 1: Considering Tax Implications and Deductible Costs:
One possible approach to address both the renovation needs and the loan is to retain the property under your father’s name, attributing the rental income to him. This way, he may be able to deduct a portion of the renovation costs from his taxable income, potentially resulting in significant tax benefits. However, it is essential to consult a tax advisor or use the AI Legalese Decoder to ensure compliance with current tax laws and eligibility requirements for deductions.
Approach 2: Exploring Financing Options and Credit Limitations:
Considering your higher income and your father’s poor credit history, another approach could be to pursue the loan in your name. While this might not provide immediate tax benefits, it allows for potentially favorable terms due to your higher income and creditworthiness. By utilizing the AI Legalese Decoder, you can gain a better understanding of the legal and financial implications associated with this option and explore possible strategies to overcome your father’s credit limitations.
Conclusion:
When seeking the most beneficial approach for obtaining a loan to address the renovation needs while considering tax implications and credit limitations, it is crucial to consult professionals such as a tax advisor and potentially leverage the AI Legalese Decoder. By utilizing these resources, you can navigate the complexities of the situation, evaluate all possible options, and make an informed decision that best suits your family’s needs and financial circumstances.
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FREE Legal Document translation
****** just grabbed a
Since you don’t own the house you can’t use it to secure the loan and get a lower rate. The only thing you could do is get a personal loan but those have higher rates than secured loans. There would be no tax benefits for a personal loan.
What is your question here? Are you asking if you should buy the house from your dad? Are you implying you’re the real owner of the house, so you want to know if your dad should sign over the deed to you? Are you asking how to ensure that the money you spend on home improvements somehow entitles you to an ownership stake in the house? What is your question?
A: I’d get some clarity on what those “tax reasons” are. Maybe they get a senior citizen or homestead tax credit that saves on property taxes. Still, worth looking into what the delta would be. A couple hundred dollar increase in property taxes would be tough to stomach on a 35k salary but maybe easily absorbed on 120. Even then, I’m just grasping at straws. If he sold you the house there’d be some tax implications for him because of the income derived from the sale (but it may not be huge or anything at all) but he’d still have a nice chunk of change. I don’t know, there’s no one obvious “tax thing” that he could be referring to but ultimately if you’re going to take on the risk of borrowing a bunch of money but all the material benefits (beyond a nicer place to live) accrue to your dad that’s something needs to be worked out in more discrete terms than “tax reasons”. Maybe after everything you do it this way because its family and you don’t need to make money from family but it helps to be clear about what’s at stake.
B: Can you divvy out what maybe needs to be taken care of today vs what you could save up for. Rewire now and live with an ugly interior for a while until you pay for that in cash.
Stop overthinking this. If you’re going to invest $30k in this house and you think the house is worth it, then pay your parents the current price of the house and officially buy the house from them and have them live as tenants (legally).
It is utter foolishness to spend $30k on something that doesn’t legally belong to you.
And if you’re renting the house to them, there’s a good chance you can write off the $30k as a landlord but you should talk to a tax guy or real estate attorney for this.
At any rate, your best bet is to spend a hundred bucks to have a consultation with a real estate tax attorney.
**The answer is – you don’t.**
Either have the house put in your name (or a Trust with you as the executor)
**Never, ever spend YOUR money on something you don’t own**. There was literally a post this week where a kid was paying all kinds of money on his dad’s home, and when Dad was selling he was completely out of the money and was pissed.
What needs to happen is your parents and you need to talk with a lawyer about estate planning and/or business planning. A small cost now can simplify your investment and avoid tax penalties down the road.
Your parents need to get a home equity line of credit loan HELOC and pay it back. So you are pretty much borrowing money from the houses current market value and then paying it back.
Make sure they set up a comfortable monthly payment to pay it back and do not let them borrow more than they need.
ItÔÇÖs not my business but if you donÔÇÖt need the financial help imo you should be paying some level of rent to them.
No disrespect to you as IÔÇÖm not sure of the circumstances
what is this, “You heard it’s bad if the house were to be put in your name” mean?
seems you’re paying out an awful lot of money for nothing.
I’m confused about the 2 family property, is it like a duplex and you rent out the other portion to another family? One option would be for your dad to sell you the home, you can take out a mortgage and he can use that to pay for the work.
If this is a rental property, does this mean you are paying rent to your dad? Are other people paying rent too? Are lease agreements in place?
If your dad has poor credit but owns this house, which is leased to you & someone else?, the rental income (primary repayment source) & collateral value of the house (secondary repayment repayment source which bank pursues if primary source falls through) should be sufficient to help him get a loan or line for this work. Terms might not be favorable as his personal guarantees to primary source seems weak, but if the house generates sufficient income to cover expenses and this debt & there is a history of this, a bank should be willing to take this risk.
If there is a mortgage on the property or any other debt or liens or the collateral value of the house isn’t that high vs the debt, the situation changes.
You need to speak to your accountant AND a good estate attorney in order to determine how to move forward.
What are the tax concerns? Property tax? Gift tax?
If you don’t legally “own” a property then you are limited in terms of what you can do. You could even be hurting finances potentially – for example if you live in the USA and your parents need Medicaid to fund their health care, the government would be able to take the value of the home – if you owned the home and the transfer had been made properly and five or more years prior to the need for Medicaid, then it wouldn’t be considered your parents’ asset – just another thing to consider which is why you need to consult with an attorney and not attempt to crowd source on Redditt since there are too many details and variables for any advice to be useful.
You can try to get your dad a HELOC as a co-signer. That way, you are on hook for the payments (which you seem to be planning) but it should improve your and his credit as you pay it off. The cost of work would go against the cost of home so when it is sold, the cost of home should step up.
A few thoughts:
If this property is claimed as an investment property on your parent’s taxes, they can write off the interest on a loan and the repair costs on their taxes. You can’t since you don’t own it. So any loan should be in his name or both your names if you are needed as a co-signer.
There should be a lease for the part that is rented and a record of payments that can be proved. That means the income also needs to be included on your parent’s taxes. Lenders will require these docs to include this income in loan application.
You need to check with an accountant, but I think other posters are incorrect when they say interest on a personal loan cannot be written off by your father on his taxes. The loan proceeds will be used to fix an investment property. No different from writing of unsecured credit card interest to me.
Again check with an accountant, but seems you could borrow the funds, and loan them to your father. If he actually repays you, he can claim the repairs and interest. Again records are important. You will have to claim any interest he pays you as income, and you can’t write off anything.
I think inheriting the house is better than buying it. If you inherit it, the tax basis is set at whatever the value is when inherited. You pay no cap gains tax. If you buy it, your dad pays cap gains tax on the difference in his purchase price and your purchase price or the value of the house when you purchase it – I am not sure which, but I think the latter.
Plus you have at least one sibling and that may complicate things.
Bottom line, you really need to talk to a tax accountant and an estate lawyer. There are too many variables to handle through reddit posts.
Since you aren’t the owner, you can’t get a home equity loan. You’ll have to get a personal loan. The other option is your dad applies for a home equity loan with you as cosigner.
I’m kind of confused if you are still living in your parents house and make 120,000 a year where is all of your money? I’d imagine you have this amount of money saved just in rent payments to just pay this in cash.
You seem confused.
Its not your house.
If you spend $30k on updating it, you’re spending $30k on someone elses house.
Now if you trust your Dad enough…sure, go ahead, but be very clear you’re renovating HIS house, not yours.
You seem to be asking if you can claim a tax deduction on money you spend on the house because the house earns income. I’m going to guess your Dad earns income, because you earning income from his house would be weird. It would be pretty unlikely you can claim a deduction for spending money on someone elses investment.
God this is such a mess, I’d seriously look into this whole “bad if house gets put in my name” thing, because all this becomes a hell of a lot easier if the house is in your name. Talk to an accountant or someone.
Did you ask this a few weeks ago? Oddly familiar.
Is there not equity in the home that you could take out a home equity line of credit and have it repaired?
If your Dad owns the house but has bad credit he can get the home equity loan with you as the co-signer. Otherwise you would need to get a personal loan and that has very high interest compared to the HELOC.
Who will be paying for the repair? That person should take out the loan.
If you want to help, donate cash to the cause. If you co-sign, you’ll probably end up paying the entire loan as they probably can’t afford it.
How much is the repair total?
I’m in a position where we’ve purchased a (cheap) house for my MIL. I know there are only so many years left for her. We’ve put effort into renovations, foundation repair, new appliances, etc. Partly because we want her to have “the good things” at least once in her life. Partly because we know we’re gonna rent it out or sell it at some point.
You should look into a living trust and contact an estate attorney to figure out your options.
Your dad has to take out the loan. You will have to cosign since he won’t qualify. Then you make the payments.
What kind of tax is prohibiting you from putting it in your name also? Do you mean capital gains, or real estate tax? It seems like this is the underlying issue, and would help answer your question.
A mortgage company isnÔÇÖt going to lend you money for an asset you donÔÇÖt own, so you would need to take out a personal loan. If you want to get a mortgage, it will have to be in your dads name, unless you both were on the loan- but from comments it sounds like he has bad credit. How bad is his credit?
Editing to add: if you are paying for a loan to update the house, keep in mind you are paying debt for an asset you do not own.
They could gift you the house. It would deduct from their lifetime gift exemption. As long as they haven’t used any of their lifetime gift exemption, they have a lifetime limit of $12.92 million.
If you take out any sort of loan on the property, you need to get a mortgage written between you and your dad, stating that he owes you the amount that you are loaning him on the property and spelling out repayment terms, and get that recorded with the county or whatever tax authority you have where you live. There is such a thing as an open-ended mortgage that has a starting amount on it but allows for future, further loan payments (So, for example, if you loan $30,000 now, and need to loan additional money later, that can all be covered by the same mortgage.) This is a way to protect yourself from taking out a loan, having the work done, and then having them tell you they’re not going to pay you back. If there is a current mortgage on the property, your mortgage will be in position behind those loans (2nd mortgage, 3rd mortgage, eyc), but the worst case scenario is, if the house is ever sold, the loan to you will have to be paid off as part of the sale if the mortgage is recorded.
You can be a borrower on the loan (sign the promissory note) and not own the collateral (not sign the mortgage). You might not be able to go secondary market, but a local bank of yours should be more than okay as long as you’re on the loan. The rate will be higher and may not be fixed, but the owner of the property would be able to write off the interest and potentially add to the depreciation base on the house.
Why don’t you take out a loan to buy the house from your parents and use that money to pay for the improvements?
He could sell the house to you. The way to transfer title you will save a lot on tax