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Sell It to Your Kids… or Don’t: The Smart (and Costly) Ways to Transfer Rental Property · The Jon Sanchez Show

• Jon G. Sanchez, CEO: to be with you and a pleasure to be with one of our two co-hosts. Mr. Quirk should be joining us here momentarily, we do have the man of the hour. No, just kidding. I with Dwight because he's like, okay, okay, Aaron at? He's got to talk about this. Like, I got this handle. If Aaron has some issue or something. Dwight Mallarda, Von Home Loans. How are you, my friend? Dwight Millard: You're doing good, Jon. How are you today? Little better, little, yeah, yeah, yeah. Better week, right? Better week than last week. Jon G. Sanchez, CEO: ⁓ a lot better than the last couple days. Dwight. It's only Tuesday now. Come on. Go on. You're being really, you're being really optimistic. I know. Dwight Millard: Yeah, okay, you're right. You're right. You're right. You're right. Okay, but Jon, I was traveling, so it sounded like to me that pal said some positive things. I reading it wrong? mean... Jon G. Sanchez, CEO: Yeah, yesterday. Yeah, it was this more of the same. He just didn't say anything wrong. How about that? He's, you know, and again, this was all yesterday. He said he was concerned or not a little bit more concerned about inflation, which, geez, kidding. Everybody else is, but he hasn't been. And, you know, we've learned that in the last couple, you know, Fed meetings and things. ⁓ no, where inflation is fine. It's transitory and all the normal things. And now all of sudden, they're they're concerned about it. But yeah, it's just, you ⁓ more of the ⁓ Dwight Millard: Okay. Okay, alright. Right, right. You're right. Jon G. Sanchez, CEO: But Dwight, that was yesterday, my friend. We've got to talk about today. But first, let me tell you what we have lined up for you after we get through the stock market recap, after we've, of course, get through the mortgage rate side of things, et cetera. And of course, this quarter is long and gone now. The first quarter of 2026 is long gone. And we are glad to see it go. It was a rough one, as you'll find out here, and especially in Dwight's world of the world of rates. I had some pretty significant movements over the of the month, primarily, ⁓ February weren't bad, but boy, month of March just took the entire quarter. But before we do that, let's get into what we're gonna be talking about today. So had a really interesting phone call to I yesterday, and this is actually prompted me to talk about this, because I'm like, you know what? This is a great issue that we need to bring up. And that's one good thing about all of us being in the trenches each and every day. We were dealing with real life situations. here's what happened. ⁓ me, I got a phone call yesterday. I an appointment yesterday with one of our dear clients. And he look, we're thinking of selling one of our rentals that we own free clear to one of our adult children a family. ⁓ And so he had a number of different questions and things that we went through. And I started to think back a little bit and I'm starting to get more of these type of questions about, like you and I and Aaron talk about all the time from the standpoint where people have homes, they've owned them for years. I I don't know how many years, but they had a $80,000 cost basis and this thing was worth north of 350, 400,000. So I think they've owned it for quite some time. But you're seeing that where a lot of parents, again folks, you gotta remember one thing. got a massive wealth shift that is going on, that gonna be going on for about the next 20, 22 years, where $125 let me repeat that, $125 trillion of wealth is gonna be passed from generation to generation. And so you to see situations like this where you're like, Yeah, I could sell the house. I don't really need the money. I don't want to pay the capital gains that depreciation recapture. we all know, of course, Dwight, that it's such difficult time right now for young families get started and ⁓ try to up and much less try to get a home. So what parents doing right now is they're going, hey, look at, let's just work out a deal. Let the kids buy the house from us. We don't really need the money. We're not going to give it to them, but we don't really need the money. So this is what we're going to be focusing on today. Do you sell it to your kids or you don't? Okay, so if you're thinking about selling your rental property to your kids, it sounds really simple on the surface, but let me tell you this, as I went through with our client yesterday, wrong move, just one, and there's a lot of steps in this whole process, one move could trigger some massive taxes, it could trigger IRS penalties, worse yet, as I told the client, it could trigger IRS audits. And of course, destroy a lot of things like your stepped up cost basis and many issues. Bottom line, if you don't do this right, there's a lot of cost, expenses and frustration ⁓ could you, right? You've got it in your heart. You wanna be the great guy and the great mom, the great dad, ⁓ and wanna pass this house over to your kids and let the grandkids grow up in there. Phenomenal intentions. But again, we're dealing with money, we're dealing with things that have capital gains and we're dealing with taxes, et cetera. ⁓ So Dwight Millard: you Mm-hmm. Jon G. Sanchez, CEO: we've got to understand everything that's associated with it. So we're gonna do today, ⁓ gonna break down how to transfer the real estate to your children the right way and to avoid the costly mistakes that a lot of people make, okay? So this gonna be, again, a really, really interesting subject that we've going with this and we'll be delving it. Dwight Millard: Yeah. Jon G. Sanchez, CEO: But Dwight, before we do, I need to get to some breaking news that just literally came out at 3.01. I haven't even had a chance to read the article, because it came right when the show was starting. here's what we need to talk about. of course, the story just disappeared on me. Let me see. Bear with me one second. Dwight, why don't go ahead and hit the rates real quick. I need to find the story. It just literally disappeared on my screen. ⁓ Dwight Millard: Yeah, well that's going to be some good news, Jon. So we'll talk about some good news, right? Yeah, so I mean, we were talking. You got it? You got it? OK, yeah, OK. Yeah, no worries. Jon G. Sanchez, CEO: Yes, yes, exactly. OK. Let me interrupt you. I'm sorry. Let me interrupt you. Yeah, I got it. Yeah, I apologize. But I want to get this out. again, folks, this just came out right at 3 o' The said that he expects the United States military forces will leave Iran in two or three weeks. We leave there's no reason for us to do this. That's what he just told reporters at the White House. He says, we'll be leaving very soon. Look what's happened to look what's happening to Iran, Trump said. I mean, we're totally unchecked. Everything's been bombed out. That's it. That's what he just told reporters. So you mean to tell me we we've been over there for is week five of the war. All these lives have been lost, property destroyed. Haven't heard anything more about nuclear weapons being destroyed. We don't have the Strait of Hormuz. And so we're just going to back out. Does that seem kind of bizarre? Dwight Millard: It doesn't sound like his MO Jon, so I don't know. It feels like it's throwing a curve ball over there and people are gonna chase it. Jon G. Sanchez, CEO: Something seems really, really strange with that. Yeah, like I said, I haven't even had a chance to research this. Mr. Clark, welcome to the show. Thank you, my friend. Howdy, sir. You just joined us. I was sharing that story. What's your opinion on that, Aaron? Aaron Clark, Edge Realty: Howdy, sir. The Trump thing? ⁓ yeah. I think that per usual we still don't have any answers. Jon G. Sanchez, CEO: Yeah, the Trump thing. Yeah, that's very, very bizarre. Yeah, leaving two or three weeks, and we've got what, five? Aaron Clark, Edge Realty: Yeah, it feels like you're leaving out some punctuation when you read it. Jon G. Sanchez, CEO: Yeah, yeah. Dwight Millard: Well, I mean, they've been begging, though, Jon, for answers of how long this is gonna go on. And, you know, I'm not saying that's the right way to do it, but, you know, they've been begging for how long we're gonna be here. Jon G. Sanchez, CEO: But there's no reason for us to do this. So... Aaron Clark, Edge Realty: but it doesn't really specify anything that has any sort of clarity as to what is behind that. Jon G. Sanchez, CEO: No, it's, yeah, absolutely, absolutely bizarre here. Yeah, I'm kind of speechless guys. I apologize. That doesn't happen to me very often, but I, ⁓ Aaron Clark, Edge Realty: Are you from that coming out? you seeing markets reacting to it? What do you just said? Okay. Jon G. Sanchez, CEO: That's exactly where I'm going right now, Aaron. You just took the words right out of my mouth. I'm gonna go with that. The futures just started trading at three o'clock, so they're new. Dow futures are down 19, NASDAQs are up 10, and the S &Ps flat. So no reaction yet, very early. yeah, I wanna dig into couple other news sources during the break and see if we can get some more details, but that's... ⁓ Dwight Millard: it just puts like kind of an end in sight, Jon, maybe for, I don't know. It doesn't sound right to me either. Jon G. Sanchez, CEO: doesn't sound right. Yeah, that's I'm saying. The ⁓ whole doesn't make any sense here. well, okay. So, ⁓ Aaron, know just us. So once again, this topic is a lot about you, it's a lot about me. We're gonna be talking the taxes, we're gonna be talking the real estate side. Again, selling our rental property. Again, gonna focus not on the primary home, but on the rental properties to our children, right? All the rules that we need to follow. ⁓ Okay, Dwight. Aaron Clark, Edge Realty: Yep. Mm-hmm. Jon G. Sanchez, CEO: Let me tell everybody what this market did. then as soon as we get back from this break, Dubai's got a lot to tell us about the mod market side of things today. So let's just kind of wrap things up at this point. As far as, like I said, ⁓ put the bow on the stock market for the month and for the quarter. And frankly, ⁓ incredible day to day. was the algorithms that went haywire for time on the upside. very, very strong day. 1,125 point gain on the Dow, 2.49%, closing at 46,341. NASDAQ gained 796, 3.83%, S &P up 185, 2.91%. So like I said, gave us a little bit of boost to put a little bit of a dent into the quarter and so on and so forth, but we still had some pretty good damage done, like I said, on the quarterly basis. We'll hit those quarterly numbers, the monthly numbers, we'll get into the big move in the bond market for this month, and then we'll get ready for our topic. Sell it to your kids or don't. The smart and costly ways to transfer rental property with Aaron and Dwight. Let's turn it over to Kristin Snow. She's in the Right Now Traffic Center. Hello, Kristin. Welcome back to the Jon Sanchez Show on Newstalk which happy Tuesday to all of you. Joined, of course, by Aaron Clark of Edgerility and Dwight Mollard of OnCue Home Loans. Once an outstanding day today. 1,125 point gain on the Dow, 2.49%. NASDAQ rose 796 points, 3.83 % and the SOP up 185. I'll make it really brief because I want to go back to this breaking news that just happened where the president announced that we're going to be leaving Iran in the next two to three weeks. Folks, I'll it down really simple here. It got started overnight. I'm assuming it was overnight because was either overnight or very early this morning because I things at three o'clock this morning and this news had not broke yet. ⁓ Matter fact, futures were down considerably when I went to bed at nine o'clock last night. So somewhere between nine p.m. our time and three a.m. this morning, ⁓ the made the comment, he said, you know, there's willingness to end the U.S. military operation in Iran even without the Strait of Hormuz opening. Everybody got excited. Then kind of mid morning, the new Iranian president, I guess you can say he's new, also signaled willingness to end the war. Didn't see any news sources quoting the Iranian president. It was very, very vague. So like I said, it all came down to that. We had a big pullback in oil down $1.77 to $1.0115, gold up $1.2250 to $4,679.50. Dwight, let's hit this bond market. I got some stats for you and I want your comment on there. for we're down three basis points to yield a 4.3 and I'll get back to this breaking story folks in just a second. ⁓ Down basis points for the day, 4.3%. For the month of up 35 basis points and for the first quarter, up 14 basis points. ⁓ So obviously we got to focus on the month of March, Dwight. mean... ⁓ Dwight Millard: Yeah. Jon G. Sanchez, CEO: you know, almost a half a percent in one month. My goodness. All right, take it away. Dwight Millard: Yeah. It's been a lot of action in the pit, right, Jon? So let's go back. February 26th, night, we talked on the radio. We broke that 6 % threshold to 599. So that was just basically four weeks and two days ago. we you know, and remember last week on Thursday, we were six, almost 6.7, right? So mean, that's almost quarters of a percentage point in actual rate in four weeks. today, though, you a Jon G. Sanchez, CEO: Yes. Dwight Millard: You had good pullback yesterday and today. So you had eight basis point decline, 6.47. So you were then 6.55, which is down from the 6.7 we had. So we've had some consecutive days to give us some relief. The 30 year FHA and VA's, Jon went inside a six. They're at 5.97 and 5.99 respectively. Jon G. Sanchez, CEO: Okay, Yeah. Dwight Millard: I mean, this is good momentum. Will it stick? Can it stay? I hope. There's a lot of people. know what Aaron's seeing, but there's a lot of people out there. I don't know if they're kicking tires or looking at carpet samples or cabinet samples. I don't know, but there's a lot of people out there. So maybe can convince some to jump off the fence. Jon G. Sanchez, CEO: Yeah Yeah, tell us what you think, Aaron. Aaron Clark, Edge Realty: Yeah, I'm totally in agreement with that. think people are, there's still some people that are being cautionary moving forward, but they're antsy, they're ready to jump in the market. So I think we see these rates continuing to pull back a little bit and that momentum becoming the trend line. I think we'll see buyers jumping right back in as much they should have before all this started. Jon G. Sanchez, CEO: OK, OK. news there, guys. All right. If you just join us, folks, once again, let me give you this breaking news that just occurred literally right when the show was starting. And that is the announced that we will leave Iran in the next two to three weeks. Now, that headline again, it was very We were questioning it. Now, I want to tell you that that was off of CNBC. I went to Bloomberg during the break and I want to share with you there's a little bit more detail involved in this statement. So guys, I want to sit back and relax for a second. I want to hit some of these points. So the president said he foresaw the US ending the war on Iran within two to three weeks, suggesting the US had largely accomplished its military goal and would leave it to other nations to resolve issues with a straight-up Hormuz. Quote, I would say within two weeks, maybe two weeks, maybe three. He told reporters at the White House just a few minutes ago. We'll leave because there's no reason for us to do this. He indicated that it was possible that Iran could still reach a deal with the US during that timeframe, but said an agreement with Tehran was not necessary for the war to end. Now wait a minute, let's go back guys. We had the 15 point plan week. We had Iran come back with their own five points, and now there's negotiations, I guess? don't know. ⁓ So he said agreement with them is not necessary. ⁓ He said the would leave Iran. leave when Iran was not able to obtain nuclear weapons and claim the regime now in power was better than the leadership before the war. Quote, we a regime change now. Regime change was not one of the things I had as a goal. I had one goal. They will have no nuclear weapons and that goal has been attained. They will not have nuclear weapons, Trump said. Oil contracts a bit further. Let me go, says, in regards to the Strait, he says, what happens to the Strait? We're not gonna have anything to do with it because those countries or these countries, China, China will go up and they'll fuel up their beautiful ships and they'll leave and they'll take care of themselves, Trump said. There's no reason for us to do it. Hold on. ⁓ Let's see. I'm trying to find there's a pretty long story. So I'm trying to. Dwight Millard: Jon I'm surprised because early in the day, you know, he made a comment that other Nations should take the straight. don't it then goes to tell Yeah, yeah Jon G. Sanchez, CEO: Yeah, that's this is the comment. So let me let me share this with you real quickly. says, quote, Well, I think it's automatically or excuse me. Well, I think it'll automatically open. But my attitude is I've obliterated the country. They have no strength left. And let the countries that are using the straight, let them go and open it. They'd probably like us to stay. He said, If we don't stay, we're going to be protecting them. We know, you know, they've been there very good. They've been, ⁓ they've been very good. So we're ⁓ with nothing done with the straight. I know guys, I'm at loss here, ⁓ but it's an interesting situation. And to Aaron's point, how's the pre-market reacting to that? again, ⁓ futures just started trading little bit ago. let me bear with me I get a first quote on the futures. Yeah, still not budget much on the news down 30 on the Dow side up 39 on the NASDAQ and hired by two on the S &P. So major there. ⁓ Dwight Millard: And Jon, and that kind of news has already been through everybody's seen it now, probably, right? mean, yeah, so the wire, yeah, so you're, yeah. Jon G. Sanchez, CEO: Everybody's seen it. Oh, yeah, absolutely. It broke it. Like I said, it broke at 301 or our time. So yeah, it's it's already been seen. Yeah, it Aaron Clark, Edge Realty: Why do you think it's not really moving too much from that statement? Do you think it's sort of just not defined? Jon G. Sanchez, CEO: The only thing I can there's a couple things. Yeah, there's a great questionnaire There's a couple things number one because it is still relatively, you know early as far as the futures are trading We're only 30 minutes into the after-hour session The second thing this could have been built in what seeing is the market seems to be a couple steps ahead of the president right if you noticed I mean made the jump up? Okay, so you had that news story something? ⁓ As I've been saying, this has been the most difficult market to predict. This has been a market that has done a lot of crazy things. I'm sure you guys read about, I forget what day it was last week when we had the massive sell-off in oil prices and the big run-up in the stock market. Well, there was trade, quote, quote, worth over a billion that went long in the stock market and shorted oil in the pre-market before the news broke. So my point is, somehow, people are finding out what the president's next move is going to be. So that could be one thing is ⁓ it's priced in, as we like to say, Aaron, where the street is already figured out, like you said, through some of his hints, which, again, ⁓ difficult predict because he'll give some hints and then he'll go the opposite direction. So ⁓ I don't if that's a real valid one. But today was algo There's no doubt about it. I mean, this market just doesn't run up. almost 1,100 points just because we we're going to get out of there. so that be the other issue. The algorithms and the institutional traders look it go, hey, we got an 1,100 point gain today on the Dow, up almost 800 on the NASDAQ. the markets already priced in. Maybe that was the move today. They already priced in what the president was going to say at 3 o'clock. Again, how in the world do they know? Who knows? So that's what I mean. ⁓ Aaron Clark, Edge Realty: I want to be on that newsletter. Jon G. Sanchez, CEO: you don't because that's the newsletter that gets you into federal prison. know, yeah, yeah. You want to be on that one because yeah, SEC's already said they're investigating, which they should be the, ⁓ you that story that the story I shared with you. So anyways, where we are, folks. I'm not going to bore you with the big run ups today. ⁓ You know, names, you ⁓ know, pretty everything just went went through the roof today. You know, this market strength. So ⁓ the key is say when you have big run ups or big run downs, see what happens tomorrow. Dwight Millard: Hmm. Aaron Clark, Edge Realty: I'm sure they are. Mm-hmm. Jon G. Sanchez, CEO: One day doesn't make a trend. Let's hope it is the beginning of an upside trend, but we will see. You got a brand new quarter starting tomorrow. We got a lot of window dressing going on today with the institutions where again, they're squaring up their portfolios and things to make it look like they've owned this or they've owned that or they don't own this. Some of the names that have been beaten up, some of the big tech names especially. So tomorrow will be an interesting day and we'll continue to monitor the futures as we go. But definitely some good news if this comes true. I'm kind of reading the story that think like you guys are, one eyebrow is kind of racing. This doesn't really make sense, but who knows? Who knows? Who am I? right, guys, we'll come back and we'll get into our topic. Sell it to your kids or don't. The smart and costly ways to transfer rental property. Let's turn it over to Jack Saban. He's got news, and weather. Hello, Jack. Welcome back to the Jon Sanchez Show on Newstalk 780K, which with Dwight Millard of OnCue Home Loans, Aaron Clark of Edgerility. Once again, we finished up 1,125 points. Feels good to say that. On the Dow, 2.49%. Nasdaq ups as 796, 3.83%. And the S &P rise there of 185 points, or 2.91%. All right, and then again, if you just joined us, the president announced right at the beginning of the show that he's saying we're gonna pull out of Iran in the next two to three weeks. Aaron Clark, Edge Realty: Yeah. Jon G. Sanchez, CEO: We're gonna leave the Strait of Hormuz up to whoever. guess really gonna change. China kinda it. All these countries we didn't want to control it, they now control it. So someday in the history folks, we'll find out the real reason behind this conflict or war. Someday. I don't think it's gonna be anytime soon though, but there's something deeper that we're not being told. All let's get to something little bit more down to earth here. selling your rental property to your kids do you not do that, right? ⁓ the smart and costly ways to transfer this rental property? So told you, I came up with this idea because I a client call me the other day and we went through all the pros and cons of this occurring. I thought, you know what, let's share this with everybody. So we're gonna through a lot of issues in this topic and listen closely because it's very interesting. So Aaron, let's start off with what are our first three ways that we can transfer property when we're talking about, and again, I'll set the table so I don't have to keep repeating it. We're talking purely about owning a rental, and we're talking between parents, yeah, just between parents and their kids. So go right ahead. What's our three to transfer? Aaron Clark, Edge Realty: Mm-hmm. Just rentals. Yep. Yeah. Yeah, so the first way we can do so is by just selling it for fair market value. you own a piece of property. Yeah, yeah, exactly. I'll give you 10 bucks off, son. Yeah, ⁓ you can just sell it directly to them. You take the cash out, they buy the property, and then they take over whatever the situation is, which would be similar to just putting it on the market and selling it to anybody random, right? Your other way to be able to do it would be to gift it somebody. Jon G. Sanchez, CEO: Wait a minute, Dad, I'm not getting a deal? That's right. That's right. Aaron Clark, Edge Realty: and you can do a partial amount. So if you did sell it at a discount, if you, let's say it was worth 500, you sold it for 400 and you gifted 100 and then gave them a good deal with the rest. You're gonna then have a gift of 100 and then sell it as a $400 sale. And then of course you can do it through inheritance by passing it on if, like when I die, my kids are gonna get my apartment complex or whatever it is, yeah. Jon G. Sanchez, CEO: And the big benefit of waiting until you die to do this. Aaron Clark, Edge Realty: Yeah, so we're getting right into the goal. Yeah. Yeah. Yeah. So the benefit of doing it that way is you basically take all of the taxable liability on that property. So if I owned it and I have my bought it for 200, it's worth 800. So I've got, you know, a large amount of capital gains of 600,000. And then I pass and my kids get it at fair market value at 800. All that taxable base from behind is just wiped out. It kind of resets. Jon G. Sanchez, CEO: We don't have time, man. We got a roll. Let's go. Let's go. Dwight Millard: Yeah Jon G. Sanchez, CEO: Center. That's right. We call it stepped up cost basis. But the downside is you got to die for that to happen. So a lot of people don't like that one. Yeah, yeah, yeah, exactly. so let's get into some of the nitty gritty of selling at fair market value, the gift, partial or full, so on and so forth. So here's I'm all three of us, I know I've seen it, I'm assuming you guys have also. The discount, right? want to give my house to my kids, or I want to sell it to them at a very big discount. Like Aaron said, maybe it's worth $6. Aaron Clark, Edge Realty: I do. I don't like that either. Jon G. Sanchez, CEO: and you want to sell it to them for $300,000 $400,000. Well, the IRS is pretty smart. And they're going to say, wait a minute, you can't do this. If you're not selling this house to them at fair market value, then it's either going to be partly a sale and partly a gift or some combination thereof. The bottom line is there's going to be some taxes due on this thing, right? And this is where people get themselves in trouble. They think they can just gift it right over to the kids. So let's use an example. Let's say you sold the home for $500,000. Or let's say it's a $500,000 home, and you sell it to your kid for $300,000. That $200,000 of capital gains would be looked at as a taxable gift. That is expensive. You don't want to do that, right? Now, as I explained to my client yesterday, here's the other thing you've got to be careful about when you start talking about gifting and taxes and everything else. So remember, folks, when you sell a rental property, you've got two forms of taxes. You have the capital gains tax, number one. which starts, you can go from literally 0 % up to 23.3%. And you have what Aaron and I and Dwight like to call the gotcha tax, which is the 25 % depreciation recapture tax that everybody forgets about. So it can be very, very expensive. Now, remember, we're selling a rental property. So we don't get that half a million dollar tax-free exclusion. So you've got to pay the capital gains tax. So like I said, the depreciation recapture tax. And again, this is where people get a lot of surprises there. Now, Aaron, let's go a little bit deeper. The move up, the stepped up basis. Let's go into that a little bit quicker. Again, we don't like the catalyst of that because it requires death. But Dwight, as you know, you deal with a lot of wealthy people. This is a big strategy in real estate. People are like, I'm never going to sell anything. I could do a 1031. I don't want to. But I've got massive, multi-million dollars of capital gains. So guess what, Junior? You're going to wait till I'm dead. Dwight Millard: Mm-hmm. Right? Right? Jon G. Sanchez, CEO: you're gonna have a tax-free property coming into you. Dwight Millard: Yeah, yeah, I mean it's very complicated it's why this is timings really good because I'll tell you in my world how they look at it and maybe we can respond to this is that Some people come to me and say why don't I just sell it to him and I'll carry back the note Right. So yeah, so I'll carry it back to know. I mean, it's still a sale, right? I mean it's still no matter that you so I the other way to and again, I'm not incur I'm just saying this is Jon G. Sanchez, CEO: Which we're going to talk about. That's right. Dwight Millard: hey, why don't I add my child onto the property and then we'll do a refinance in six months or something like that, right? And take me off. I mean, the IRS is smarter than that. So I don't know whether that complicates that. Yeah, yeah, yeah, yeah, yeah. Jon G. Sanchez, CEO: Mm-hmm. Mm-hmm. Go down that real quickly. Go real quickly because that's not one of our points, but you bring up an excellent point as always. Go down the path of that. the kid on and ⁓ Dwight Millard: So, yeah, so either way, whether there's a loaner, let's just say you go down and you add them. I mean, in my world, you have to be on the, they're gonna look at the date down when you were added to the title as borrower, as a of it, then an owner. And then after six months, you have the ability to do a cash out refinance and take the parent off. I mean, you you could, you know, again, I wanna get in deep weeds here because this may, Jon G. Sanchez, CEO: Owner. Mm-hmm. Mm-hmm. But that is nothing that, yeah, but that does nothing as far as the capital gains and gifting and all that stuff though. Just want to be real clear. Dwight Millard: Agreed, agreed, but does that delay it? Does that push it out? Jon G. Sanchez, CEO: only if we get into the installment sale, which we'll talk about here in a second. That's the key to this whole thing. So Aaron, let's go to point number five, the seller financing strategy, right? Back to my example, this happens a lot. Parents on the house free and clear, spend a rental for X of a number of years. Take it from there. Dwight Millard: Yeah, yeah, yeah. Aaron Clark, Edge Realty: Yeah, so from being able to do that, you basically have the parents where they become the lender. So they are the lending institution. So they can usually give some sort of, while do usually give some sort of a little bit of a benefit there, but they're collecting that monthly residual income for the property. And keep mind that the IRS will look at the rate that they give them. So you can't. You can't go in there and say, I'm gonna give Johnny a 3 % interest rate when we're sitting on a 7 % interest rate market. When I say a little bit of a break, you can do things like what I see a lot of my clients do is they'll do like a deferred start. They'll do it as an amortized longer loan because they're not regulated by Fannie Mae Freddie Mac. You can do whatever you want. Yeah, exactly. Jon G. Sanchez, CEO: Yup. 10 years with a balloon. Yeah. Dwight Millard: Yeah, yeah, yeah, yeah. Aaron Clark, Edge Realty: an interest only for the first three, whatever, so they can get on their feet and get situated. But the great thing for the parent is now you've created, let's say you just do a standard 30 year at a decent rate, a 6 % or something like that, you're guaranteeing that retirement income for 30 years it's coming off of that property. Jon G. Sanchez, CEO: OK, so let's go real quickly into more of the weeds to use Dwight's term. So when establishing the interest rate, again, mom and dad are going to carry the paper. When you're establishing the interest rate, there's two you need to think about. So the IRS says that you have to look at, or you should at what's called the AFR, which is it's a monthly national rate that the IRS or Treasury gives us. Aaron Clark, Edge Realty: Mm-hmm. Jon G. Sanchez, CEO: And it's used basically for private loans, right? I had to look at it yesterday. It was a little over 4%. I don't remember the exact amount. So pretty low. So my client's like, well, can, yeah, so we can give, you know, do essentially a 4 % mortgage to the client. I said, no, you can't because they expect you to add something to that. in my experience, and this is why, again, folks, always run all of this behind, in front of your accountant before you ever consider selling a home, gifting, whatever you want to do, run it past your accountant. Aaron Clark, Edge Realty: Yeah, it's still discounted. Jon G. Sanchez, CEO: I've been taught by number of accounts I've worked very closely with over the years is you don't really want to use the AFR rate, which you want to do. And Dwight, we brought you up in the conversation yesterday. ⁓ looked at mortgage news daily. We took the 30-year rate. And I said, come in a little bit below that. Right, IRS ⁓ going to to you and audit you if you. ⁓ no. ⁓ I said, I don't think they would have any problem. Check with your accountant of offering, say, a quarter percent below the national 30%. Dwight Millard: out. Yeah. Yeah. Aaron Clark, Edge Realty: Exactly. You don't want to always be at the bottom or the top. You want to be somewhere floating in the middle. Dwight Millard: Yeah, yeah. Yeah, yeah. Jon G. Sanchez, CEO: or 30-year mortgage rate. There's nothing wrong with that. But the minute you start giving them a massive discount, even at AFR, which again, you're talking roughly 2 % below the national 30-year mortgage rate, good luck. Here comes the audit. don't want to do it. These type of transaction folks are red flags for the IRS. You need to make sure all I's are dotted and T's are crossed. You need to make sure your accountant's 100 % behind it. And again, you follow the rules because everybody wants the help of their kid out. But you have to follow the rules. Or as the parent are going to be the one that's paying the penalties and the IRS audit and so on and so forth. So be very careful. We have a couple more things we want to touch on we come back. Let's wrap it up with Kristen Snow right now, Traffic Center. Hello, Kristen. Welcome back to the Jon Sanchez Show on Newstalk with Aaron Clark of Edgerility. Mr. Clark, phone number, sir. Aaron Clark, Edge Realty: 673 6700 Jon G. Sanchez, CEO: Dwight Mallard on Q Home Loans, number my friend. Dwight Millard: 240-2022. Jon G. Sanchez, CEO: Beautiful. All right. Sorry we had to rush through this, folks, but again, had that breaking news. And again, we're talking about the proper way to sell your home, your rental, to your child. OK, if you have any questions, by all means, reach out to any of us, and we'd be more than happy to guide you on this. Just a quick update on the futures. Once again, the president at 301 this afternoon, when we got the news story, indicating that we're pulling out of Iran in the next two to three weeks is what he says. And we're leaving the Strait of Hormuz up to whomever. Dow futures right now down 28. NASDAQ's are up about 49 in the S &Ps or higher by just three. so let's hustling here, guys, and make sure we hit some final good points here. Let's talk about the seller financing strategy, guys, because this is one thing, again, where you've got to know what you're doing. And again, it obviously includes your attorney, your CPA, et cetera. But we were about capital gains issues. And let's hit this one more time. If you as the carry an installment sale with your child, this can really spread out the tax liability. So for example, say you carry a 10-year note, right, with a balloon due at end of that. So you need to claim ⁓ one-tenth of ⁓ capital gains depreciation recapture each year for the next 10 years. If you do it for 30 years, you claim one-thirtieth. ⁓ So the a lot of accountants will do is they'll say, carry the note for Johnny, little Johnny, for 30 years, right, Mr. Client? Because You're only going to be paying 1.30 of the capital gains and depreciation recapture over that time period. again, this is where a really good accountant and financial advisor will come in and help you guide you through the strategy. We, of course, want to make sure this rental property. Now remember, you're still, now Aaron, let me ask you this. Mom and dad sell it to Johnny. Mom and dad are still on the deed. Right. They're just like the bank. They're still on the deed. So they still have liability issues. If something, if the little Johnny decides, like you said, do a become a Coke freak and throws a bunch of parties and someone gets crazy and, you know, hurts themselves. They can still come after mom and dad. Right. Aaron Clark, Edge Realty: Mm-hmm. Mm-hmm. You Yeah, I always recommend using an exchange company to manage all that because then they'll do the foreclosure and everything and report to the bureaus is my understanding as well if requested. Jon G. Sanchez, CEO: Perfect. we're talking about liability issues. That's something else that you need be, hopefully your rentals already in an LLC, but if not, this would be a time that you'd want to consider doing that. Again, because you're, you don't know, all love our children, but you don't know what goes on after hours or behind the scenes. So like I said, you want anything to happen. You've got a lot of equity most likely in that property and you want to shelter that in the event something does happen. ⁓ talk your accountant and CPA about moving that into ⁓ a, into an LLC. Remember on the gifting side, I went over this with the clients too, this is real important to remember, you can gift in 2026, our year, you can gift $19,000 per person to anybody you want to. So husband and wife, you can obviously gift $38,000 total to little Johnny. But if little Johnny is married, guess what? Now you can give 38,000 little Johnny and 38,000 to his wife. So there's a lot of games that you get into. And again, this is where you want to get into with your... with your attorney and things to at the gifting side, then the tax returns have to be filed, et cetera. So very but once again, there's all kinds of strategies to do if this is something of interest. Another idea, you just sell the property or 1031 it, or hang onto And like you said, up cost basis at death. So many issues we can So, all righty, boys, excellent as We will do it again tomorrow on the Jon Sanchez Show. God bless, have a great afternoon.