Buying Home + Remodel in Loan??

Xandar · Joined: 09 Jan 2008 Posts: 2

Hi, all,

My wife and I currently rent a house from my parents-in-law. They are looking to sell the house as they are preparing for bankruptcy and then rent a room from us in exchange. Their mortgage on the house is $180k (approximately) and the house is valued (via appraiser, websites and a realtor that came bye) at $215-$230k.

What we want to do is purchase the house from them at $210 and then have the extra money ($30K) be applied to closing costs (up to the legal limit) and the remainder used for the remodelling. It doesn't matter whether the remodelling is done by us or by them, but we'd like to avoid it showing as capital gains on their income for two reasons -- 1 the above mentioned bankruptcy and 2 income taxes.

I was wondering if anyone had some suggestions on how best to handle this from a structure perspective or if this is even something that's legal. The lenders would not be LOSING any value in the house as the appraised value is, even without the remodelling, higher than the loan we're looking for!

-- X

Marty 1stMet · Joined: 20 Sep 2007 Posts: 38 Location: Williamsburg

You would have to buy the house at 180k, and take out a 2nd or HELOC to do the remodel. I can help you. PM or email me to discuss.

Marty

liverichly · Joined: 10 Feb 2005 Posts: 199 Location: Orange County, CA

If they haven't already, they should definitely consult with their attorney on what potential consequences there could be by selling their home to avoid having to list it in their bankruptcy paperwork. Could be grounds for having the bankruptcy dismissed.

If it does turn out to be legal, if they've lived in the home for 2 of the past 5 years then they should be able to avoid capital gains taxes on the sale. I would also suggest buying the home for the appraised value, nothing prohibits your in laws from using the sale proceeds to improve a house you'd own.

Bottom line though is have them run this by their bankruptcy attorney, you definitely don't want to mess with the government.

Jenie0109 · Joined: 27 Jan 2009 Posts: 307 Location: chicago IL

thanks for the info. great post.