Purchasing My Parents Home

If you’re purchasing your parents home, make sure you consider federal income tax issues and how to payoff your parents mortgage loan.

Q: I am thinking of purchasing my parents home. I am one of three daughters who will inherit our home when they pass away. My parents have a mortgage on the home and some credit card debt.

Would it be wise for us to purchase my parents home before their death so that their mortgage debt is paid off? I recently sold my home and have money from that sale. Well, I don’t want my parents to die with all of this mortgage debt on their shoulders and I’m not sure how we would be taxed on it once the probate process happens.

I was thinking since my older sister wants to potentially keep the home it might be better for us to get everything done now and to pay off the mortgage. We don’t want to be forced to sell by the lender when they die and their estate is probated. Is there any advice you can give us as I consider purchasing my parents home?

Mortgage and credit card debt and parents’ finances

A: Plenty of older Americans have mortgage and credit card debt, and like you, their relatives worry about what will happen after they die. And, we frequently get questions about how to handle that debt, especially if there aren’t a lot of other assets.

Let’s start by saying that lenders generally won’t demand the repayment of a residential mortgage loan when the owner dies. Lenders will call the loan when the borrower or the borrower’s heirs fail to make the mortgage payments. If you keep making the payments, then the loan will stay in good standing. So if you and your sisters have enough resources, this shouldn’t be an issue.


Garn-St. Germain Act and property title transfers

Many years ago, the federal government passed the Garn-St. Germain Act. This act protects spouses and children when the owner of a home adds spouses or children to the property’s title. In other situations, the act prevents a lender from calling the loan when the owner puts the title into a living trust.

Since you can continue to pay the mortgage, there’s no reason to pay off the mortgage loan now or to buy the home from your parents so that they are debt free. When they die, if you want to pay off the remaining loan, you can.


Federal income tax considerations-tax basis


We prefer that you inherit the home. When your parents die, tax law allows them to pass down quite a bit of wealth (currently the amount is $11,700,000 for an individual and $23,400,000 for a married couple, although this could change under the current administration). That’s a huge chunk of change to pass down. Even if their estate isn’t even close to that, when they die, the home would get a stepped-up basis. This means that you and your sisters would inherit the home at its value at the time once both of your parents are gone.


Tax benefit with step up basis on death of property owner




©2021 by Ilyce Glink and Samuel J. Tamkin