Q: In 1979 my parents bought a home. In 1990, my parents and I went in together and purchased a new home.

We decided to rent out their original house.

In 1994, I got married and we all continue to live in the same house. My mother was not doing too well health-wise, and I didn’t want them on their own.

In 2002, we paid off the original house, which is still in my parents’ name. The next year, my mother passed away. My father continues to live with us and our children in the house we bought in 1990.

My wife and I would like to start a business and need about $200,000. The original house is worth a little over $300,000 and is totally paid off. My father would like for me to take ownership of the house and do with it as I please. He just wants to live his retired life without any hassles. Since he only has Social Security, he probably can’t qualify for a loan.

So the question is, if he adds me to the title or quit claims the house to me, will I end up paying a bunch of taxes? Since 1990, I have been collecting the rent, paying the mortgage and taxes on the original house. All the checks are in my name. Since my dad and I own the house we live in, will my father blow his chance to use his lifetime exemption? Can he use it if he passes down the rental property to me?

A: Your situation is a bit confusing. Let’s start with the rental property.

Your father owns the rental house, but you receive the income from the property. I suppose you have been recording the income on your taxes, after subtracting the cost of the mortgage, upkeep and taxes.

But since you don’t own the rental property, you haven’t been taking depreciation. I wonder how your father has treated the rental property on his income tax return.

If he deeds the property to you now, it is like giving you a huge gift of $300,000 which is well in excess of the $12,000 per year that your father can give to an individual. That can cause problems with the IRS.

Your father also owns a third, and maybe half, of the house in which you live. Depending on how the deed to the property was recorded, it’s likely that he inherited your mother’s share of the property. So, he has a significant amount of assets.

As far as income goes, your father gets Social Security, but he also owns the rental property (for which you are acting as manager, it appears) and he owns half of the house in which you live.

Because the income from the rental property would support the mortgage, he could probably qualify for a mortgage on his own.

If you sold the property, you’d collect $300,000, but you would also have to pay capital gains tax of 15 percent, plus state tax. That would be $45,000 plus the state tax, plus the costs of sales. That’s a lot of cash to give away and it sounds as though it is unnecessary. Keep in mind that for federal estate planning purposes, when your dad dies, he will be able to transfer these properties to you free of any estate tax.

So for now, getting a mortgage seems like a smarter move — if you and he can swing the finances. You should speak to several local mortgage lenders and mortgage brokers to see what is possible.

Then, you should borrow the $200,000 formally from your Dad — even if it’s at a low rate, but sufficient to satisfy the IRS. Seek the assistance of an estate attorney who can advise you and your father how best to treat the loan in the context of his estate.

Although it sounds as if his estate falls well below the $2 million threshold and his exposure to the federal estate tax may be limited, there may be state tax consequences depending on where you live.

Feb. 1, 2006.