I am buying a house from my brother, the house is worth $220,000. and my brother willing to sell it to me for whatever the house is owe the bank, which is $170,000. He is willing to give me all of the equity of the house to me, so i can put it down for down payment and closing cost. my question is with the $50,000 equity that I'm receiving, does my brother or I will need to pay tax on it? i did some googling, and it said the if you give pass $15,000 then you have the life time exclusion to fall back to which is limit of $5.6m. but I'm not sure about it, and when i talked to my mortgage loaner, he isn't sure also.
This is not a normal transaction and the lender will be paying close attention to the money.
They will insist, as all lenders do, on an appraisal; but don't expect any leeway. If the comps for the house sold for $200K, then expect them to hold fast to that number. They are concerned because the decision to buy by you is the belief that you are getting a $220K house for $170K not that you are making a fair arms-length offer.
They may also be concerned about getting a home inspection. They want to know that there isn't a major issue which would would make it hard for you to get the repair done, and prevent your from making the monthly payments.
That $50K gift also concerns them. They will want to know that there isn't a side deal that involves you paying back that gift. Expect your brother to have to sign paperwork swearing it is a gift.
Note that if this deal happens, then the sale price is $170K, and that is what will be used later to determine if taxes are owed when you sell it years later.
The closing cost issue won't go away. Make sure you know all the numbers. Some items have to be paid: appraisal, recording fee with the local government, lawyers, title insurance. That money has to either come from one of the parties, or included in the mortgage which makes it harder to keep the mortgage at or below 80% of the value to avoid private mortgage insurance.
Gift tax is paid by the gift-giver, not the person receiving the gift. So you will not pay tax on the gift for sure.
The question might be if your brother would have to pay gift tax, as he probably would expect you to pony up for it. However, there are tax-free gift limits for siblings, so he should be fine:
The first $14,000 of the $50,000 gift would be covered by the annual exclusion; the remaining $36,000 would count toward the lifetime exclusion ($5.49 million)