What to do when buying a family owned property

You’ve played hide and seek with the cousins and your siblings in this backyard for as long as you can remember. Every time you walk through the front door you are flooded with warm fuzzy memories of happy, carefree times.

Right now you have the opportunity to buy that relatives home at excellent terms. Since you’re family, do you still need an agreement in writing?

Yes, you absolutely do!

Somewhere down the road, for whatever reason, not everyone in the family may still be feeling those warm and fuzzy feelings. Someone feels slighted, left out or has an unexplained change of heart about the situation. Having the agreement in writing not only means the terms and conditions aren’t subject to memory but can be a real safeguard against a family feud erupting!

A clearly documented and signed agreement does wonders for keeping peace in the family, and Uncle Sam has specific rules governing such transactions as well that must be adhered to. He insists the loan must be executed in like
manner as any other real estate transaction, which includes a written contract specifying the amount of the loan, the interest rate that is being paid along with all other terms to the transaction.

One of the advantages of buying a relative’s home may be paying a lower interest rate than the current market offers but the IRS requires the paperwork be recorded as a lien in order for the interest deduction to be claimed on taxes. The rates that can be charged are subject to IRS rules as well.

see current prevailing terms.

A sale between family members can be a benefit to all parties involved, saving time and money on both sides. You will still definitely want to talk to a tax professional and a* real estate professional* for help in having all documents drawn up and filed properly as well as objective guidance on avoiding those possibly sticky issues when family is involved.