Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
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
Print the post Back To Top
No. of Recommendations: 0
Use form 709

Use this form to report:
Transfers subject to the federal gift and certain generation-skipping transfer (GST) taxes, and
Allocation of the lifetime GST exemption to property transferred during the transferor's lifetime.


https://www.irs.gov/forms-pubs/about-form-709-united-states-...
Print the post Back To Top
No. of Recommendations: 2
The gift exclusion applies to you and your estate not to your son.
Print the post Back To Top
No. of Recommendations: 1
If one wanted to see how far one could bend the rules...

...if son is married, date a check December 31, 2017 and amount of $14k and then date a check for January 1, 2018 for $15k. Then have your spouse do the same. That gets you to $58k. Then you could both write checks this year to the spouse for the remainder. No extra paperwork to file.

JLC
Print the post Back To Top
No. of Recommendations: 4
We are helping our son purchase a home and are giving him $75,000 to be used as a down payment. Obviously, this exceeds the annual gift exclusion allowed by the IRS.

Not necessarily by a lot, especially since you said 'we' - which I'm assuming means you are married. The exclusion limit is $15k for 2018. Is your son single or married? If your son is married, you and your spouse each give him and his spouse $15k, for a total of $60k in 2018. If he's not married, then the maximum in 2018 would be $30k.

That said, if he's married, you could have avoided going over the exclusion by each of you gifting each of them up to $14k in 2017 and up to $15k each in 2018, which would have more than covered $75k. Even if he's single, you and your spouse could have given him $14k each in 2017 and $15k each in 2018, which would have been a total of $58k, so you still would have had to file.

I found some information on GSTT but that does not seem to apply.

If by 'GSTT' you mean Generation Skipping Transfer, and the information you have found refers you to Form 709, that is the correct form - you just don't have to use the entire form, and you should probably read the instructions to help you determine which part(s) of the form you need to use. Here is a link to Form 709 https://www.irs.gov/pub/irs-pdf/f709.pdf and here is one to the instructions for Form 709 https://www.irs.gov/pub/irs-pdf/i709.pdf

I would caution that the links provided are for the 2017 form and instructions, and don't show the increase to the 2018 amount of $15,000 per person. Assuming you are gifting in 2018, I would suggest waiting until the 2018 form and instructions are provided to fill out and file the form. If you gifted in 2017, then the form and instructions provided in the links can be used.

We are writing a letter to define the down as a gift for the mortgage people.

The cynic in me perceives that statement like it's not really a gift. I hope that's not the way you meant it, because if you and he have a side agreement that he will pay the money back, and you're not telling the mortgage people about it, that's mortgage fraud.

AJ
Print the post Back To Top
No. of Recommendations: 2
If one wanted to see how far one could bend the rules...

...if son is married, date a check December 31, 2017 and amount of $14k and then date a check for January 1, 2018 for $15k. Then have your spouse do the same. That gets you to $58k. Then you could both write checks this year to the spouse for the remainder. No extra paperwork to file.


Just a concern about being charged with fraud to avoid filing the paperwork.

There is no gift tax until one exceeds the estate tax floors. Until 2026, the Federal estate tax won't hit married couples with estates of less than $22.4MM, adjusted for inflation. Even if Congress doesn't repeal the sunset provision, it would still only apply to married couples with current values of $11MM, adjusted for inflation.

If someone is really concerned about hitting those limits, they really should be getting their advice on IRS filings from someplace other than a public message board.

AJ
Print the post Back To Top
No. of Recommendations: 0
If one wanted to see how far one could bend the rules...

In other words, cheat <wink><wink>.

PSU
Print the post Back To Top
No. of Recommendations: 2
We are writing a letter to define the down as a gift for the mortgage people.

The cynic in me perceives that statement like it's not really a gift. I hope that's not the way you meant it, because if you and he have a side agreement that he will pay the money back, and you're not telling the mortgage people about it, that's mortgage fraud.


Poor choice of words on my part. My understanding is that his lender requires such a letter to confirm that it is indeed a gift. Which is exactly why we are writing the letter.

I understand the annualized exclusion amounts, but no, we did not start to gift him last year and certainly NO, we are not going to try and go back and gift with a post-dated check. He is single, so it wouldn't fully cover the amount anyway. Had it been on our radar, we probably would have last year, but then there are many things we all wish we had thought to do when the time was more beneficial.

Thank you all for pointing out the correct form. Guess I was too confused by the IRS explanation to appreciate I had the right form.

Snowthunder
Print the post Back To Top
No. of Recommendations: 0
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
Print the post Back To Top
No. of Recommendations: 2
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.

The risk in this approach is that you are now at risk for the entire mortgage should something happen to your daughter.

Responding to previous posters, be careful about using the full $15000 gift limit as there is a slim chance it will revert to $14000 due to the new tax law (TCJA). All inflation indexed amounts need to be recalculated using the chained-CPI. The IRS has begun issuing announcements about which amounts are changing and which are remaining at the previously released 2018 levels, but I don't know whether they've addressed the annual gift limit yet.

Ira
Print the post Back To Top
No. of Recommendations: 0
Just a concern about being charged with fraud to avoid filing the paperwork.

More so referring to back dating a check. Who would know unless they went through your checkbook or bank records ? Plus, you usually have 90 days to cash a check from the day it was written.

JLC
Print the post Back To Top
No. of Recommendations: 3
More so referring to back dating a check.

Yes. That's fraud.

Who would know unless they went through your checkbook or bank records ? Plus, you usually have 90 days to cash a check from the day it was written.

Doesn't matter. It's still committing fraud. That said, because of all the mortgage reporting requirements these days, large gifts may be monitored, and matched to gift tax returns, or the lack thereof.

AJ
Print the post Back To Top
No. of Recommendations: 8
If one wanted to see how far one could bend the rules...

...if son is married, date a check December 31, 2017


That is not bending the rules. That is fraud. Would you also suggest shoplifting from a store with poor security? Getting away with "wrong" doesn't make it "right".


🆁🅶🅱
Print the post Back To Top
Advertisement