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You're not asking for an alternative to a gift, but having gone through this with our daughter back in 2001, let me just offer the following.

Rather than gifting, we purchased an interest in the property by providing the 20% down (about $60,000 plus closing costs) and going on the deed as 20% interest holders. We had to notify our homeowner's insurance of this, to which they required verification that she had homeowner's insurance. Had she defaulted on the mortgage, we would have had to step in, which we understood and accepted. This arrangement worked well, in that when she sold the house about 6 years later for nearly twice what she paid for it, we instructed the escrow to simply refund out initial interest, which they did. Afterwards, we got into a discussion with a CPA friend, who suggested that we should have received 20% (or whatever the precise % our interest was initially) of the net proceeds and been subject to capital gains tax on any gain over the original investment...and thinking about it, he's probably right.

An alternative we also considered was to set up an arm's length loan with her, with a formal loan agreement, market interest rate, making it interest only payments and so forth, with the agreement requiring repayment of the loan on sale of the house. Our strategy would have been to gift the interest payments back to her each year, and since they were under the gift tax exclusion each year, would not require filing a 709. However, as I recall, the lender had a problem with this arrangement in qualifying her for the 80/20 loan, so we couldn't use that approach.

Just some thoughts.

BruceM
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