My friends lives in Colorado and at the time that they were home shopping they did not have good credit or income history (due in part to having lived overseas in years prior). Since they could not qualify for a mortgage with a competitive rate, they instead had their parents purchase a home for them but they covered all the costs. Specifically, they paid the down payment, closing costs and every mortgage payment.
Now, my friends would like to be the owner of the property so that if they wish to sell the home they can avoid capital gains tax, since they have been living in the home for the past five years.
Some people have suggested a quitclaim deed but others have warned that that would likely incur a gift tax. Are there any other options that would avoid the gift tax implications while still allowing my friend to sell the home and avoid capital gains taxes?
I should also mention that my friend’s parents recently paid off the remaining portion of the mortgage. So, the bank is no longer in the picture and my friend is paying monthly directly to their parents.
Thanks in advance for your help!