Large Monetary Gift - Gift Tax Question

My parents want to gift me $300K to help purchase a home. What is the best way to do this for mutual benefit with minimal tax implications?
Thank you!
Reply to
Lee Tol
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.
Reply to
bono9763
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. JOE
Reply to
joetaxpayer
snipped-for-privacy@gmail.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 status). 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
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-- which also offers extensive on-line info, or provides for downloadable pubs and forms. Bill
Reply to
Bill
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.
Reply to
Herb Smith
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. Regards, John Levine, snipped-for-privacy@iecc.com Primary Perpetrator of "The Internet for Dummies", Information Superhighwayman wanna-be,
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, ex-Mayor"More Wiener schnitzel, please", said Tom, revealingly.
Reply to
John L
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.
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Reply to
Benjamin Yazersky CPA
That can make it hard or impossible to get a mortgage; banks want the equity to be cash, not borrowed. Seth
Reply to
Seth
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 applicable year).
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. Stu
Reply to
Stuart A. Bronstein
a single appraisal in December should suffice for one gift in December and next year's gift in January. This will cut down on appraisal fees.
Reply to
Gil Faver

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