Your parents can each gift you $12,000 per year, for a total
of $24,000, without any tax consequences. If you are
married, they can gift you and your spouse each $12,000, for
a total of $48,000. If they gift you more than that, they
will have to file a gift-tax return, Form 706. They won't
owe any tax, it will just reduce their lifetime estate tax
exemption amount, currently at $1,000,000, I think.
Alternatively, they can set it up as a loan, and each year
they can forgive $24,000 of the loan (or $48,000 if you are
married.) The downside of this is that it will take as much
as 13 years to forgive, and depending on their ages and
health, they might not live that long or might change their
minds about the loan.
One other factor that could mess this up is that the current
estate tax law expires in 2011, and who knows what Congress
will do to extend it, alter it, or not.
The least convoluted way is for them to declare the gift and
take a credit against their lifetime unified gift credit.
(The $1 million each they can gift in advance). The IRS.gov
web site has further explanation on this.
The other choice, which avoids tapping that credit, is for
them to gift you $48,000 now (this is 4 times the annual
gift exclusion, and presumes you are married, each of your
parents can gift each you and your spouse $12,000) and lend
you the remaining $252K. Be sure they have a lien on the
house and you agree to pay them market interest. They then
continue to gift you the maximum amount allowed each year,
which you can use to pay the interest and pay down the
principle. This arrangement requires a legal document which
the closing attorney would draw up. The numbers change if
you are single, but the idea is the same.
email@example.com (Lee Tol) posted:
Each parent can give you $12,000 each year, without any tax
or estate consequences. If the gifts can be structured
carefully over time (using a total of $24,000 annually -- or
$48,000 if you're married -- with $24K each to yourself and
your spouse) ... then the $300,000 gift could be passed
along in approximately 6 to 12 years (depending on marital
Be wary of Congress, however. Tax rules can be modified at
any time, so any plan should be reviewed in the light of
each new year's changes to the tax code.
For a good basic source of Gift Tax Law and the impact on
estates, read Pub 950. Also, if a single year's gift
exceeds the non-reportable limit, then Form 709, US Gift Tax
Return, will have to be filed by your parents.
These pubs and forms are available from the IRS. Visit your
local office, or
-- which also offers extensive
on-line info, or provides for downloadable pubs and forms.
Gifts to you of any amount will not create any tax (income
or gift tax) liability to you. Each of your parents can gift
you at least $12,000 per year ($24,000 total) gift tax free.
Amounts over that exclusion amount are subject to Gift Tax
reporting, but may not create an immediate tax bill. If they
have, or will have, exceeded their lifetime exclusion
($1,000,000 each) prior to death there will be tax due.
Otherwise, their lifetime estate tax exclusion (currently
$2,000.000 each) will be reduced by the taxable gifts.
You mention "mutual benefit", but it seems all one-sided
from this viewpoint. What do your parent's gain from this
large gift? except to reduce their taxable estate (and
estate taxes) by some degree.
The gift could be structured as part gift and part
(majority) mortgage loan, with the idea that a certain
amount of the loan be forgiven each year.
One possibility would be for them to buy the house jointly
with you, with you and them as tenants in common, with
percentage ownership based on the amount you each put in.
For example, if the house cost $500K, they'd put in their
$300K in cash and own 60%, you'd put in your $200K
presumably in some combination of cash and a mortgage and
own 40%. You'd make an owners' agreement stating that
you're responsible for mortgage, taxes, maintenance, and
insurance, and you get to live in the house.
Then each year they gift you $24,000 of the house's value,
$12K from each of them, or whatever the gift tax limit is.
This shouldn't require re-registering the deed, a letter
documenting the gift should do. If you sell before they've
given you the whole amount (13 years unless the gift tax
exemption goes up, or unless you get married and they can
give you and your spouse $24K each), they get the ungifted
share back, and I suppose you could do the same thing on the
next house you buy and keep going. If they die before they
give you the whole amount, they can give you the rest of
their share in their wills which should be tax-free since
$300K is well below the exclusion of any likely estate tax.
Alternatively, if it's unlikely that they'll ever do
something like this again, they can just give you $150K each
and file a gift tax return. There shouldn't be any tax due,
but this decreases their ultimate estate tax exemption by
the $150K each. So long as their total joint estate after
giving you the $300K is under $1.7M, there still won't be
any estate or gift tax. If it'll be over $1.7M, I would
encourage you to pay a few bucks to a competent tax lawyer
or CPA rather than depending on free advice from usenet.
John Levine, firstname.lastname@example.org
Primary Perpetrator of "The Internet for Dummies",
Information Superhighwayman wanna-be,
, ex-Mayor"More Wiener schnitzel, please", said Tom, revealingly.
A loan should work.
Parents loan you the $$$$$$
You sign a note to pay interest, at market rate, at least
annually. Each year parents forgive the gift tax exclusion
amount. (I think its $12,000 for this year per person) With
gift splitting, a married couple can gift twice that amount.
Consult your own CPA & attorney to structure your own deal.
-----> real address on hobokeni or hobokenx
That's form 709. The 706 is for estate taxes.
To effect the gradual transfer the parents can buy the
property, have have it appraised each year. After they
appraisal they can transfer the percentage that corresponds
with $24,000 (or whatever the exempt amount is in the
Also on the downside either the parents will have to
recognize phantom income on the interest they don't receive,
or the children will have to recognize cancellation of debt
income in that amount.
It expires but if not changed the former law comes back,
leaving people with a $1,000,000 combined gift and estate
tax lifetime exemption.