Loan to family for home purchase

snipped-for-privacy@nospam.not (Han) posted:

Your figure of $48K is correct. If you're determined to avoid the gift tax form, you should prepare an arms-length contract for any additional funds provided, with an interest rate that is equivalent (or close to) market rates -- e.g.,

5% - 6% at least. You would not necessarily have to file a second mortgage, but the document should have that "flavor." You should expect your son+ to make the interest payments periodically. Now, if you subsequently decide to "gift" them some additional reduction in the principal owed, that's another question, for another tax year. Your accountant doesn't want to hear anything about it at all, and your son shouldn't either. Bill

It depends on what your income tax bracket is and what your estate tax bracket will be. I generally like the loan and forgiveness route, though that does involve you recognizing taxable income for interest you never receive. My question is, if the parents' loan is not secured by mortgage, can both the parents and the kids find the forgiven interest is taxable to them? Stu

I don't think that there's one right answer. It depends on your facts & circumstances. Perhaps you should consult with your CPA or estate planning attorney to help you decide what works best for you in your siutation

One couple can give another couple $44,000 once a year without triggering a gift tax.

For tax purposes, lending the money and foregiving the entire loan next year (you don't want to let it continue, because it generates interest income to the parents each year it's outstanding) is probably better, though if the parents' estates aren't large it might not matter if they use up some of their $1 million lifetime gift exclusion. For mortgage purposes, banks really don't like people borrowing part of their down payment, so a gift works much better. Seth

"Han" wrote

At least two things come to mind. The debt they owe needs to be disclosed on their loan applications. And the IRS may consider the fact that they didn't make one single payment on the "debt" and call the whole thing a "gift" and wonder why you didn't file the gift tax return. It might be best to gift them what they need and file a gift tax return and get it past you.

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

"Paul Thomas, CPA" wrote in

Thanks for all your advice, everyone. Thus far I have gone the route of the 48K gift. Anything more I will have to cogitate on. Possibly filing a gift tax return is the thing to do. Will have to find out whether New Jersey has any special rules ...

-- Best regards Han email address is invalid

"Paul Thomas, CPA" wrote in

Thanks for all your advice, everyone. Thus far I have gone the route of the 48K gift. Anything more I will have to cogitate on. Possibly filing a gift tax return is the thing to do. Will have to find out whether New Jersey has any special rules ...

-- Best regards Han email address is invalid