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She has a $130,000 home equity loan on a $200,000 home. I want to care for her which means I have to sell my home leaving me with approx. $150,000 to buy her home. I am also disabled with a low income so I am concerned about would we be hit with some type of penalty or what would happen if she would have to go to a nursing home (we really don't want this to ever happen.) Since she would not be selling it to me for way under value, would I be hit with a penalty?

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Thank you. That was a very thorough answer.
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Unfortunately, she has a home equity loan (the $130,000), so an appraisal was done by the bank. They did not come in the home, their figure came from an exterior and surrounding area assessment. It's not too bad inside ad I could probably get it lowered, but not that much. Since I'm on disability, I can't get paid for my services. Her income is low, too. If she does go into a home (She and I do NOT want that to happen, but you never know.), I would probably have to sell the home to pay for her some of her care. I don't know if I can even take care of her, she's quite well now, but this living across the country is not working for either of us. I have no plans to stay in the area when she is gone.

Aside from the Medicare transfer penalty, would I be on the hook for a gift tax or income tax if sold to me at a lower than appraised value? My income is low, so getting hit with a lot of taxes would hurt financially especially after moving expenses. I don't itemize because my income is so low.
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What you are referring to is the Medicaid "transfer penalty". For any real property sold or transferred for a full 5 years prior to the Medicaid application, the state can evaluate whether the property was transferred at Fair Market Value. If it wasn't, then they can do a transfer penalty. The penalty is a formula based on each state's reinbursement day rate for Medicaid room & board @ the NH. So for TX the payment is $ 145.00 a day (low) so 50K means 345 days of penalty in which mom has to private pay for her NH stay before Medicaid will pay a penny.

So yes you could get hit with a transfer penalty....but you may be able to do things to reduce the penalty.

Is the 200K the annual tax assessor value? or did you pay for an independent real estate professional appraisal? If the 200K is from the tax assessor, it could well not truly represent the value of the property. Like I got my mom's house assessed value reduced because it has significant foundation issues which affect it's value. Had to do a hearing & provide documentation (photos & estimated for repairs) but got it reduced several years ago. So think about if the tax assessor value may perhaps need to be lower due to issues with the house. & then look at mom's tax assessor statement to see how they do re-evaluations. Most have a tight window in which to contest the assessed value for that year.

You know what has happened in many areas is that the counties started increasing the value of property back in 2004 - 2008/9 back when real estate was all a go-go. Then the real estate crash & foreclosures happened and the assessor didn't go back and revaluate property and left it at it's inflated rate. So the assessor value is no where at the figure where you could sell it at. You can ask a good Relator in your area if the tax assessor value is realistic.

The other thing is that you can pay for an independent appraisal of the house. You want to show all the bad stuff in the house too - so old roof, aging out water heater, cracks in walls, foundation issues, old plumbling, etc. all need to be pointed out to the appraiser so they can do a evaluation on the home that takes into account all the bad stuff and give you a lower value. That alone may be able to lower the value to your 150K or better yet even lower! So no transfer penalty issues later on if she ever applies for Medicaid.

now what is mom going to do with the $? You may want to meet with an elder law attorney to discuss options for mom. I bet they suggest mom draw up a valid legal "personal service contract" to pay you for your caregiving. Gives you income and lowers her assets over time. But there may be other things they suggest to do with mom new a$$ets. Good luck.
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