Need Advice

[Diego Mamani]

It’s not asinine to ask 🙂

Once you inherit the note, there’s no loan anymore, so you can’t be in default.

Now, in your example I think you are saying that you stop paying after your in-laws die, but before you inherit the note?

Even in default, the note has some value, not zero. But you’re right, tax consequences can be complex.

[XBoxBoy]

[quote=rent4now]
As far as the tax base you are talking about…
Can you fill me in on that? I think what you are saying is there is a way to pay taxes based off what my in-laws pay instead of the higher rate I would be paying as if I was any random buyer?[/quote]

That’s the gist of it. It’s my understanding that if you do an in family transfer, (ie from your inlaws to your spouse) of the title you can keep the tax base used to compute the property taxes. Depending on how much your inlaws paid for the place that could be a very substantial savings on future property taxes. I’m not an expert, so anyone who knows more about this correct me. But before you close escrow be sure to thoroughly investigate this.

[XBoxBoy]

[quote=rent4now]
As far as the tax base you are talking about…
Can you fill me in on that? I think what you are saying is there is a way to pay taxes based off what my in-laws pay instead of the higher rate I would be paying as if I was any random buyer?[/quote]

That’s the gist of it. It’s my understanding that if you do an in family transfer, (ie from your inlaws to your spouse) of the title you can keep the tax base used to compute the property taxes. Depending on how much your inlaws paid for the place that could be a very substantial savings on future property taxes. I’m not an expert, so anyone who knows more about this correct me. But before you close escrow be sure to thoroughly investigate this.

[XBoxBoy]

[quote=rent4now]
As far as the tax base you are talking about…
Can you fill me in on that? I think what you are saying is there is a way to pay taxes based off what my in-laws pay instead of the higher rate I would be paying as if I was any random buyer?[/quote]

That’s the gist of it. It’s my understanding that if you do an in family transfer, (ie from your inlaws to your spouse) of the title you can keep the tax base used to compute the property taxes. Depending on how much your inlaws paid for the place that could be a very substantial savings on future property taxes. I’m not an expert, so anyone who knows more about this correct me. But before you close escrow be sure to thoroughly investigate this.

[XBoxBoy]

[quote=rent4now]
As far as the tax base you are talking about…
Can you fill me in on that? I think what you are saying is there is a way to pay taxes based off what my in-laws pay instead of the higher rate I would be paying as if I was any random buyer?[/quote]

That’s the gist of it. It’s my understanding that if you do an in family transfer, (ie from your inlaws to your spouse) of the title you can keep the tax base used to compute the property taxes. Depending on how much your inlaws paid for the place that could be a very substantial savings on future property taxes. I’m not an expert, so anyone who knows more about this correct me. But before you close escrow be sure to thoroughly investigate this.

[XBoxBoy]

[quote=rent4now]
As far as the tax base you are talking about…
Can you fill me in on that? I think what you are saying is there is a way to pay taxes based off what my in-laws pay instead of the higher rate I would be paying as if I was any random buyer?[/quote]

That’s the gist of it. It’s my understanding that if you do an in family transfer, (ie from your inlaws to your spouse) of the title you can keep the tax base used to compute the property taxes. Depending on how much your inlaws paid for the place that could be a very substantial savings on future property taxes. I’m not an expert, so anyone who knows more about this correct me. But before you close escrow be sure to thoroughly investigate this.

[SK in CV]

[quote=flu][quote=Diego Mamani]That’s simple FLU… Once you inherit the note, you own the property free and clear.

But if your wife has siblings, they may jointly inherit the note… in which case you still have to pay back the loan.[/quote]

But let’s just assume that right now, there are no siblings to share the estate….If you (as the debtor) refuse to pay the loan, could you (as the creditor) simply not call the loan and just take the loss? I ask because, let’s say the current estate tax exclusion is $5million, and the estate holds a say $2.5 million note secured by some property. And since you (debtor) refuse to pay, it’s no longer “performing”… What amount is used concerning this note towards the estate tax exclusion computation? The original amount written on the loan ($2.5 million) or the current face value of the note ($0, since it’s no longer performing since you, the debtor, refuse to pay off the note)…More importantly, does the IRS require you (creditor) to actually try to collect on a loan. Or could you just eat the loan? And BTW, are loan forgiveness still not a taxable event in the current environment?

You know, I’m just asking because, well just asking. If it’s asinine to ask, so be it.[/quote]

Always scheming, aintcha?

No bad debt deduction unless there is a bonafide debt. A debt to yourself doesn’t quite qualify.

The debt forgiveness is a pretty damn good catch on your part. The tax relief for debt forgiveness on a primary residence only runs through 2012, then reverts to the old law. Debt forgiven will be taxable to a solvent taxpayer.

Extra bonus scheming penalty for you too. Even if it otherwise would work, it’s worse than a wash. Bad debt deduction is a capital loss, limited to $3,000 a year (over and above capital gains.) Debt forgiveness is ordinary income. So you’ll pay even more current taxes than if the debt was just cancelled.

(As an aside, when doing estate planning, debts like this should NEVER be forgiven in a will. It creates taxable income for the beneficiary. Rather, the debt should either be specifically identified for inheritance, or not mentioned at all, and will be part of the remainder estate and can be dealt with as an estate distribution.)

[SK in CV]

[quote=flu][quote=Diego Mamani]That’s simple FLU… Once you inherit the note, you own the property free and clear.

But if your wife has siblings, they may jointly inherit the note… in which case you still have to pay back the loan.[/quote]

But let’s just assume that right now, there are no siblings to share the estate….If you (as the debtor) refuse to pay the loan, could you (as the creditor) simply not call the loan and just take the loss? I ask because, let’s say the current estate tax exclusion is $5million, and the estate holds a say $2.5 million note secured by some property. And since you (debtor) refuse to pay, it’s no longer “performing”… What amount is used concerning this note towards the estate tax exclusion computation? The original amount written on the loan ($2.5 million) or the current face value of the note ($0, since it’s no longer performing since you, the debtor, refuse to pay off the note)…More importantly, does the IRS require you (creditor) to actually try to collect on a loan. Or could you just eat the loan? And BTW, are loan forgiveness still not a taxable event in the current environment?

You know, I’m just asking because, well just asking. If it’s asinine to ask, so be it.[/quote]

Always scheming, aintcha?

No bad debt deduction unless there is a bonafide debt. A debt to yourself doesn’t quite qualify.

The debt forgiveness is a pretty damn good catch on your part. The tax relief for debt forgiveness on a primary residence only runs through 2012, then reverts to the old law. Debt forgiven will be taxable to a solvent taxpayer.

Extra bonus scheming penalty for you too. Even if it otherwise would work, it’s worse than a wash. Bad debt deduction is a capital loss, limited to $3,000 a year (over and above capital gains.) Debt forgiveness is ordinary income. So you’ll pay even more current taxes than if the debt was just cancelled.

(As an aside, when doing estate planning, debts like this should NEVER be forgiven in a will. It creates taxable income for the beneficiary. Rather, the debt should either be specifically identified for inheritance, or not mentioned at all, and will be part of the remainder estate and can be dealt with as an estate distribution.)

[SK in CV]

[quote=flu][quote=Diego Mamani]That’s simple FLU… Once you inherit the note, you own the property free and clear.

But if your wife has siblings, they may jointly inherit the note… in which case you still have to pay back the loan.[/quote]

But let’s just assume that right now, there are no siblings to share the estate….If you (as the debtor) refuse to pay the loan, could you (as the creditor) simply not call the loan and just take the loss? I ask because, let’s say the current estate tax exclusion is $5million, and the estate holds a say $2.5 million note secured by some property. And since you (debtor) refuse to pay, it’s no longer “performing”… What amount is used concerning this note towards the estate tax exclusion computation? The original amount written on the loan ($2.5 million) or the current face value of the note ($0, since it’s no longer performing since you, the debtor, refuse to pay off the note)…More importantly, does the IRS require you (creditor) to actually try to collect on a loan. Or could you just eat the loan? And BTW, are loan forgiveness still not a taxable event in the current environment?

You know, I’m just asking because, well just asking. If it’s asinine to ask, so be it.[/quote]

Always scheming, aintcha?

No bad debt deduction unless there is a bonafide debt. A debt to yourself doesn’t quite qualify.

The debt forgiveness is a pretty damn good catch on your part. The tax relief for debt forgiveness on a primary residence only runs through 2012, then reverts to the old law. Debt forgiven will be taxable to a solvent taxpayer.

Extra bonus scheming penalty for you too. Even if it otherwise would work, it’s worse than a wash. Bad debt deduction is a capital loss, limited to $3,000 a year (over and above capital gains.) Debt forgiveness is ordinary income. So you’ll pay even more current taxes than if the debt was just cancelled.

(As an aside, when doing estate planning, debts like this should NEVER be forgiven in a will. It creates taxable income for the beneficiary. Rather, the debt should either be specifically identified for inheritance, or not mentioned at all, and will be part of the remainder estate and can be dealt with as an estate distribution.)

[SK in CV]

[quote=flu][quote=Diego Mamani]That’s simple FLU… Once you inherit the note, you own the property free and clear.

But if your wife has siblings, they may jointly inherit the note… in which case you still have to pay back the loan.[/quote]

But let’s just assume that right now, there are no siblings to share the estate….If you (as the debtor) refuse to pay the loan, could you (as the creditor) simply not call the loan and just take the loss? I ask because, let’s say the current estate tax exclusion is $5million, and the estate holds a say $2.5 million note secured by some property. And since you (debtor) refuse to pay, it’s no longer “performing”… What amount is used concerning this note towards the estate tax exclusion computation? The original amount written on the loan ($2.5 million) or the current face value of the note ($0, since it’s no longer performing since you, the debtor, refuse to pay off the note)…More importantly, does the IRS require you (creditor) to actually try to collect on a loan. Or could you just eat the loan? And BTW, are loan forgiveness still not a taxable event in the current environment?

You know, I’m just asking because, well just asking. If it’s asinine to ask, so be it.[/quote]

Always scheming, aintcha?

No bad debt deduction unless there is a bonafide debt. A debt to yourself doesn’t quite qualify.

The debt forgiveness is a pretty damn good catch on your part. The tax relief for debt forgiveness on a primary residence only runs through 2012, then reverts to the old law. Debt forgiven will be taxable to a solvent taxpayer.

Extra bonus scheming penalty for you too. Even if it otherwise would work, it’s worse than a wash. Bad debt deduction is a capital loss, limited to $3,000 a year (over and above capital gains.) Debt forgiveness is ordinary income. So you’ll pay even more current taxes than if the debt was just cancelled.

(As an aside, when doing estate planning, debts like this should NEVER be forgiven in a will. It creates taxable income for the beneficiary. Rather, the debt should either be specifically identified for inheritance, or not mentioned at all, and will be part of the remainder estate and can be dealt with as an estate distribution.)

[SK in CV]

[quote=flu][quote=Diego Mamani]That’s simple FLU… Once you inherit the note, you own the property free and clear.

But if your wife has siblings, they may jointly inherit the note… in which case you still have to pay back the loan.[/quote]

But let’s just assume that right now, there are no siblings to share the estate….If you (as the debtor) refuse to pay the loan, could you (as the creditor) simply not call the loan and just take the loss? I ask because, let’s say the current estate tax exclusion is $5million, and the estate holds a say $2.5 million note secured by some property. And since you (debtor) refuse to pay, it’s no longer “performing”… What amount is used concerning this note towards the estate tax exclusion computation? The original amount written on the loan ($2.5 million) or the current face value of the note ($0, since it’s no longer performing since you, the debtor, refuse to pay off the note)…More importantly, does the IRS require you (creditor) to actually try to collect on a loan. Or could you just eat the loan? And BTW, are loan forgiveness still not a taxable event in the current environment?

You know, I’m just asking because, well just asking. If it’s asinine to ask, so be it.[/quote]

Always scheming, aintcha?

No bad debt deduction unless there is a bonafide debt. A debt to yourself doesn’t quite qualify.

The debt forgiveness is a pretty damn good catch on your part. The tax relief for debt forgiveness on a primary residence only runs through 2012, then reverts to the old law. Debt forgiven will be taxable to a solvent taxpayer.

Extra bonus scheming penalty for you too. Even if it otherwise would work, it’s worse than a wash. Bad debt deduction is a capital loss, limited to $3,000 a year (over and above capital gains.) Debt forgiveness is ordinary income. So you’ll pay even more current taxes than if the debt was just cancelled.

(As an aside, when doing estate planning, debts like this should NEVER be forgiven in a will. It creates taxable income for the beneficiary. Rather, the debt should either be specifically identified for inheritance, or not mentioned at all, and will be part of the remainder estate and can be dealt with as an estate distribution.)

[Author]

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