Ask: My parents added me and my brother to the deed of their New York City home over 30 years ago, and now both of our parents are deceased. My brother lives in the house and I live in my own house. We agreed that he would buy back my share of the house for about 30% of the house’s current value. We settled that money because he can pay it to me now in cash and then I will pass the deed to him. What is the simplest and cheapest way for us to legally complete this transaction? How much tax will I have to pay?
ONE: Before your brother can buy you back for 30% of the house’s value, you need to determine what 100% of that value is. Home valuation is not an exact science, and in this case, your brother benefits if the house is priced lower, while you benefit if the house is valued higher. The simplest method of determining exactly how much you will receive is for both parties to hire an independent real estate appraiser, then divide the difference.
“If your appraiser arrives at one point and he arrives at another, you will meet in the middle,” says Daniel Timinsa real estate attorney and financial planner practicing in Manhattan.
After you’ve agreed on the home’s value and charged 30 percent of your share, a document that says you’re foreclosure on your portion of the property for a set amount must be drawn up, signed, and signed. Notarized.
“Obviously these are best done by a lawyer,” Mr. Timins said. However, he adds, if you’re looking for the simplest and least expensive method, “you’re more covered as long as you have both parties’ signatures and you have it notarized. “
The transfer taxes you will owe also depend on the value of the home. In New York City, a seller must pay a 1 percent transfer tax if the amount — that’s what your brother pays you — is less than $500,000. If it’s more than $500,000, the tax goes up to 1,425 percent.
You’ll also have to pay state tax, equivalent to 0.4 percent of amounts under $3 million and 0.65 percent of amounts above $3 million. (If it’s over $1 million, your brother, as the buyer, will also be subject to the 1 percent mansion tax.)
Another thing to consider: Your agreement to accept less than 50 percent of your legal stake in the deed means you may also owe gift tax, which ranges from 18 percent to 40 percent, depending on the size of the gift. An attorney can advise you on ways to minimize that payment.
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