[quote=SK in CV][quote=Mooki]OK, my mom is not gifting me $25K. I loan her $25K over a few years of helping her out. This is a few thousands here and there. Some are not directly to her but checks to her realtor and persons fixing her house etc. Now she wants to pay me back the money she owes me, either from the proceeds of selling the house or through giving me part of the interest/equity of the house (since the house does not sell). How do we make it clear to the IRS it is a loan repayment and not a “gift”?[/quote]
In that case, a quit claim deed probably wouldn’t be appropriate. You are buying the house (or an interest in it) in exchange for extinguishing the debt. I don’t know about GA laws, but in CA, you would buy the property with a written contract specifying the sales price for the interest you’re buying. Make sure the contract specifies the amount of debt you’ll be assuming in addition to your payment to her. Your payment being the debt being extinguished. (A written contract is required for a sale, but not for a gift.) A grant deed would be more appropriate. It would be a reportable sale for your mother (though not necessarily taxable, she’s entitled to the primary residence exclusion if there is a gain.) The IRS won’t have any problem with it.[/quote]
In this type of conveyance, SK, Mooki would get title insurance. She would be able to put a provision in her “purchase contract” that she approve the preliminary report as a condition of sale. Then and only then would she know if there is sufficient equity in it to repay what her mom owes her. IMO, she should also have a NEW appraisal done and make that a contingency as well. Of course, if she has to secure new financing to pay off her mom’s loan, then the appraisal will be mandatory.
