My husband, my sister and I are buying a home. My sister would like to pay one-third of the cost of the house, and we’d finance the rest of the purchase. My husband and I would pay the mortgage each month, and my sister would not contribute to those payments. Is there a problem with my sister putting up the money? Does the government care that she would put up the money without being a party to the debt?
The question for you to answer is why do you want to own the home with your sister? If you and your husband will live in the home, you might not want to have your sister in the mix. However, if all of you will buy the property together and your sister will live there with you, you will all have an interest in owning and living in the home.
There are cases where certain family members help others with the purchase of a home. Your sister may be putting up the down payment of the home so that you and your husband can buy it.
However, we’d like the three of you to have a written agreement that says who owns what, how the home will be run, who will decide when to sell, who will decide what needs to be fixed and how, and any other major decisions relating to owning the home. The document needs to be similar to a partnership agreement so that the three you will have thought through the many issues that can and will come up and the issues can be easily resolved. The agreement should also spell out financial terms, including the fact that your sister is making the down payment and you are paying the monthly cost of the property.
The federal government won’t care how many of you are on the loan for the property. It will care that you account for all tax payments and issues properly. If you can deduct real estate tax payments or interest payments, those deductions should be taken on the proper party’s federal income tax return.
When the home is sold, the person taking a profit or loss from the sale must account properly for that profit or loss. Those are the issues that would most concern the federal government.
As you move forward, you should talk to a real estate lawyer about the purchase and what you’re hoping to achieve by designing it in this way. You might also want to talk to an accountant to make sure you understand the implications of owning the home in this way.
If you and your husband split up, you and your sister will need a mechanism to buy out his interest in the home. You also need to discuss what happens if one of you dies. Will the other two inherit that share of the property equally? How you hold title to the property and what the partnership agreement says will be extremely important on this issue.
Ilyce R. Glink’s latest book is “Buy, Close, Move In!” Samuel J. Tamkin is a Chicago-based real estate attorney. If you have questions, you can call Glink’s radio show (800-972-8255) any Sunday from 11 a.m. to 1 p.m. Contact Glink and Tamkin through the Web site, www.thinkglink.com.