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My father found a better loan than us, so we are thinking about him giving us the money for the house, we pay cash for the house so we get it under our name, and then we pay to him every month for the loan he will be paying.

Is this possible? Will have this some taxes implications?

We both live in Houston, Texas.

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    You need to specify where you (and your father) live, as tax law varies widely. – ChrisInEdmonton Apr 20 '15 at 20:09
  • We live in Houston Texas – Maria Apr 20 '15 at 20:11
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    Your strategy may have several holes in it. If your dad is getting a loan in an amount that can buy a house or condo but without putting up the property as security for the loan (mortgage) and he is getting a better interest rate on such a large unsecured loan than can be obtained with a mortgage, then he must have substantial other assets, and enough lawyers hanging around to advise him how to structure the deal. – Dilip Sarwate Apr 20 '15 at 20:57
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Your actual question is a bit confusing, but parts of it are answerable.

If your parents give you cash to buy a home, you use it for a cash sale, and you then repay them, then if they don't charge you interest (above and beyond any they may pay - treat their loan as entirely separate from yours.) that amount of not-charged interest is considered a gift. You can look up these rates here, on the IRS website, called "Applicable Federal Rates"; currently it's around 2.30% APR. If the interest is that much, the interest isn't a gift, but part of a loan - though your parents will have to file some paperwork and you will also. Search for more information about "Intra-Family Loans" for full details - and talk to a real estate lawyer.

Separately, if your parents are the primary/only signors on the mortgage, and are thus effectively the property owner, there are two separate issues. First, you're welcome to pay off the mortgage while you live there, and no tax issues exist (then) in terms of gift, though it's still owned in your parents' name - so you don't get the house, they'd have to gift that to you separately, though they can do that in stages to avoid gift tax ($14k worth of equity per year, or whatever the current year's annual limit is, per parent and per you/wife if applicable).

H&R Block discusses the concept of Equitable Ownership, which determines who is able to take the property tax and mortgage interest deductions on the house. Tax Almanac goes into a bit more detail on the subject. Ultimately, another issue for a real estate attorney probably (or at least a CPA or tax attorney): you need to be very careful if you're going to try and get the tax deductions (which would be probably far more than the savings of a half percent of interest rate or whatnot).

In general, there are a lot of options for exactly how you structure the purchase, payments, and equity, and you should talk to a professional to find out exactly the right way to structure it. This mortgage info site has some good tips for several different ways to structure things, just as an example. I would in particular suggest you pay attention to deductability of mortgage interest and property taxes, as those two can be a huge amount of tax savings and you can lose that very easily if you're not careful.

  • My understanding is that for an interest-free loan that is repaid, the interest that you don't pay is a gift, but not the loan itself. – gnasher729 Apr 21 '15 at 14:28
  • You're right, and that's what I meant - but rereading it now I see that I didn't word that correctly. – Joe Apr 21 '15 at 14:30

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