Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
My girlfriend's father is "giving" her $50,000 as a 20% down payment on a home. I use quotations not to call to question his generosity, which is sincere enough, but to note that he is going to be on the title and will expect to receive benefits such as appreciation at the time of sale. Yet he is doing it for her benefit, and he wrote her a check for the entire amount for her to use as the down payment and closing costs. He won't be either on the mortgage or on the title at first, but after the close he will be put on the title, or at least that's the plan.

Of course we are aware of the impending property taxes, and the deduction for the interest payments on her income taxes. Are there any other tax consequences here beyond these two considerations? Will there be a gift tax of some sort on the $50K?
Print the post Back To Top
No. of Recommendations: 0
Will there be a gift tax of some sort on the $50K?

Not for your girlfriend - there are no tax consequences for the recipient of a gift like this. There will be consequences for her father. The annual limit on giving is $11K per person (father and mother combined could give her twice that, or $22K). Beyond those limits, father/parents need to file a gift tax return. Typically that doesn't actually generate an immediate tax liability, because the way it works is that each person has something called a unified gift/estate tax credit, which amounts to the tax on about a million dollars (the limits are changing yearly). Actual taxes don't get levied until you've exceeded that amount. Instead, the gift is set against that limit, and eventually (when father dies) it will work out that estate tax kicks in a bit earlier than otherwise because of this gift. Or maybe not - our friends on Capitol Hill keep changing the rules, and who knows what the law will be next year, never mind 20 years from now.

So - short answer, no problems for girl friend, gift tax return (but likely no tax liability) for father.

Lorenzo, waiting for irasmilo to tell me this is all wrong
Print the post Back To Top
No. of Recommendations: 3
lorenzo2:

<<<<Will there be a gift tax of some sort on the $50K?>>>>

"Not for your girlfriend - there are no tax consequences for the recipient of a gift like this. There will be consequences for her father. The annual limit on giving is $11K per person (father and mother combined could give her twice that, or $22K). Beyond those limits, father/parents need to file a gift tax return. Typically that doesn't actually generate an immediate tax liability, because the way it works is that each person has something called a unified gift/estate tax credit, which amounts to the tax on about a million dollars (the limits are changing yearly). Actual taxes don't get levied until you've exceeded that amount. Instead, the gift is set against that limit, and eventually (when father dies) it will work out that estate tax kicks in a bit earlier than otherwise because of this gift. Or maybe not - our friends on Capitol Hill keep changing the rules, and who knows what the law will be next year, never mind 20 years from now.

So - short answer, no problems for girl friend, gift tax return (but likely no tax liability) for father."


I agree with Lorenzo description of gift tax rules.

"Lorenzo, waiting for irasmilo to tell me this is all wrong"

I am not irasmilo nor a tax pro, but I tend to doubt the characterization as a gift.

OP wrote: he is going to be on the title and will expect to receive benefits such as appreciation at the time of sale. . . . , but after the close he will be put on the title, or at least that's the plan."

IMO, someone who expects to be on title and to receive benefits such as appreciation is not making a gift. I would guess that they are creating some kind of bass-ackwards, oral general partnership that is completely ill-defined and which will be a real mess, BWDIK?

Regards, JAFO
Print the post Back To Top
No. of Recommendations: 0
IMO, someone who expects to be on title and to receive benefits such as appreciation is not making a gift. I would guess that they are creating some kind of bass-ackwards, oral general partnership that is completely ill-defined and which will be a real mess, BWDIK

Sounds more than likely. Sounds like a mess and a real PITA.
Print the post Back To Top
No. of Recommendations: 1
Lorenzo, waiting for irasmilo to tell me this is all wrong

Lorenzo, Lorenzo, Lorenzo, <g>

That looks fine to me, as far as gift rules go. I would worry about what the mortgage company might say when the daughter tries to change the deed. Also, if she does change the name on the deed, it may be construed as a pair of gifts -- one from the father to the daughter of $50,000, the other from the daughter to the father of a % interest in the house. This could trigger gift tax implications for both of them.

Definitely a foolish (not Foolish) thing to do. They really should get professional guidance BEFORE they do the wrong thing.

Ira
Print the post Back To Top
No. of Recommendations: 1
I'm not entirely clueless. I didn't comment on the possible quid pro quo (putting Dad on deed, sharing in appreciation, etc.) because that's well beyond anything I know about. And I agree with others that this could wind up being a large scale Can of Worms. But as it stands now, it's a gift: dad has given daughter 50 large, and that's all that's happened. Thus far, consequences are none for daughter, gift return for father. What happens next is speculation at best.

Lorenzo, coming back for more from Ira
Print the post Back To Top
No. of Recommendations: 1
My girlfriend's father is "giving" her $50,000 as a 20% down payment on a home. I use quotations not to call to question his generosity, which is sincere enough, but to note that he is going to be on the title and will expect to receive benefits such as appreciation at the time of sale.

This is a very bad implementation of a reasonable idea. "Equity sharing" is a common arrangement. For all concerned it should be done upfront with proper legal documents.

Debra
Print the post Back To Top
No. of Recommendations: 1
I'm not entirely clueless. I didn't comment on the possible quid pro quo (putting Dad on deed, sharing in appreciation, etc.) because that's well beyond anything I know about. And I agree with others that this could wind up being a large scale Can of Worms. But as it stands now, it's a gift: dad has given daughter 50 large, and that's all that's happened. Thus far, consequences are none for daughter, gift return for father. What happens next is speculation at best.

Lorenzo, coming back for more from Ira


Lorenzo,

I think I need to apologize. My last post on this matter was not meant to be in any way critical. I thought I was sighing about your worries that I was going to continue to criticize you. However, rereading my words "on screen" I realize that what I intended certainly didn't come across as such.

You are most certainly NOT clueless. I consider you to be a valuable contributor and I worry that the tone of my recent posts might be driving you off. If I step over the line, just let me have it with a 2x4 between the eyes.

Ira
Print the post Back To Top
No. of Recommendations: 0
I think I need to apologize.

Ira, Ira, Ira,

Nonsense. Nothing to apologize for. The business about "coming back for more from Ira" was a joke. I just find it slightly amusing that I keep making posts (these last few days) and you keep correcting me! But that's all right - if I say something wrong, or miss some arcane bit of tax regs, I hope that someone knowledgeable, like you or Phil Marti, will correct me.

Lorenzo, not going anywhere any time soon
Print the post Back To Top
No. of Recommendations: 0
IMO, someone who expects to be on title and to receive benefits such as appreciation is not making a gift. I would guess that they are creating some kind of bass-ackwards, oral general partnership that is completely ill-defined and which will be a real mess, BWDIK?

Actually, they are going to have a lawyer draw up an agreement about the particulars of equity sharing, survivorship, etc.
Print the post Back To Top
No. of Recommendations: 2
5000fingers:

JAFO: <<<<IMO, someone who expects to be on title and to receive benefits such as appreciation is not making a gift. I would guess that they are creating some kind of bass-ackwards, oral general partnership that is completely ill-defined and which will be a real mess, BWDIK?>>>>

"Actually, they are going to have a lawyer draw up an agreement about the particulars of equity sharing, survivorship, etc."

IOW, it really and truly is not a gift and therefor signing a "gift" letter is not truthful. A gift is "a voluntary transfer of property from one person or entity to another made without charge or consideration."

http://www.lectlaw.com//def/g007.htm

Instead, it is consideration - "Something of value that is given in exchange for getting something from another person."

http://www.lectlaw.com//def/c098.htm

"Consideration is a benefit or right for which the parties to a contract must bargain; the contract is founded on an exchange of one form of consideration for another. . . . Whatever its particulars, consideration must be something of value to the people who are making the contract."

http://www.nolo.com/lawcenter/dictionary/dictionary_listing.cfm/Term/AE6272D6-6D95-477A-9329B127CAFB66C6/alpha/C

It cannot be both a gift and the consideration for the equity sharing and right of survivorship.

Regards, JAFO

Print the post Back To Top
No. of Recommendations: 0
Actually, they are going to have a lawyer draw up an agreement about the particulars of equity sharing, survivorship, etc.

I can assure you the mortgage company will be less than pleased about this unless both names are on the mortgage (or the purchase is made by the partnership, if a formal partnership is created).

Ira
Print the post Back To Top
Advertisement