JUNE 27, 2025
Question: “My parents own a flat in a large city in the United States. They have tenants and the property is worth over $500,000. I want to buy the property from my parents, but they were initially concerned about the rehab costs and would feel guilty if I went into massive debt repairing it. Now they’ve changed their tune on selling me the property. I proposed buying the property and giving them a portion of the rent profits for the rest of their lives. Example: I collect $3,400 a month in rent and give them $1,000 and use the rest for taxes and other expenses.
They own the house they live in and plan on selling it and moving when they retire. They would rather sell their rental property to me than someone else, but my question is, would it be possible for them to sell it to me for cheaper than what it is valued? Is there a way to avoid any tax implications from the property jumping up almost 600% from when they purchased it? Is it legal to do this? Do we need a pro to help us?”
Answer: There are ways to go about buying your parents’ home — and pros we spoke to said you may want to consult an estate planning and real estate attorney, financial planner, and a tax adviser to help you make this decision.
At a high level, if your parents agree to sell you the property below market price, it’s perceived as them gifting you the property’s equity, explains Danielle Miura, a certified financial planner at Spark Financials.
“For example, if the actual price is $700,000, but you agree to buy it for $600,000, $100,000 has been gifted to you,” says Miura. For 2025, the maximum limit for gifting is $19,000 per individual, or $38,000 per couple. If the difference between the market value and the selling price exceeds this exemption amount, your parents will have to file a gift tax form. They can also use the $13.99 million lifetime exemption,” says Miura.
Furthermore, “your parents could gift the home to you to avoid the tax and this would mean you’d receive their basis,” says Anthony Ferreira, a CFP at WorthPointe Wealth Management. “But why are you giving rent profits to your parents for life? Do they need money for retirement? Why not just pay market price for the property and keep the income?”
What’s more, based on current U.S. estate tax laws, if you receive the property as part of your inheritance, you would receive a step-up in basis to the market value of the property at the time of their death.
Ferreira says, “Ask your parents why they’re looking to sell. Do they need a lump sum of cash for some reason, or is receiving income from the property no longer desirable? If so, what is the value to the parents of receiving income from the property going forward.” Basically, your parents are taking a risk that you’re willing and able to make those payments for as long as they live, as it doesn’t seem like you’re looking to be legally bound to those terms.
Additionally, you should consider why you want to buy a house that needs so much rehab it could throw you into massive debt. “That’s a giant red flag,” says Ferreira. “If the property is in need of repair, that should be considered in determining the sale price of the home. How was the value determined? It should be professionally appraised.”
Estate planning attorney Katie Clemm of Clemm & Associates says she highly recommends the guidance of an estate planning and real estate attorney, financial planner, and a tax adviser before acting on the ideas you’ve presented as there are three factors to consider: estate planning, economic impacts and quality of life.
“This process is lengthy and complicated and includes finding the fair value of the property, appraisals, drawing up a purchase agreement with an attorney, inspections, filing gift tax returns and paying taxes, so a good real estate attorney would be helpful here,” says Clemm.
Going through with this sale would remove the property from your parents’ estate, which will reduce any state inheritance tax obligations, but depending on the current value of your parents’ estate, there could be federal tax implications.
“As an alternative, consider conveying the property over a period of years, taking into account the annual federal tax exemption to avoid gift tax consequences,” suggests Ryan Kaysen, a CFP at Integritas Financial. “This will not use up the lifetime exemption if there is concern their assets exceed the $27 million.”
There’s also the 1031 exchange that you may want to bring up to your parents. “Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free,” the IRS explains.
Courtesy/Source: Marketwatch