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Megan and Delta,

Thanks a lot for your advice; I appreciate it. You both have been very helpful. I'll look for MILLIONAIRE NEXT DOOR.

I agree with you, Delta, that large gifts can be problematic, but we don't drive a Lexus and, in a town where many people send their kids to private school, our kids go to public schools. We have been cutting back on some expenses. My parents are very generous and made this offer to make the downpayment partly because they are concerned about my health. My wife, who has been greatly inspired by HGTV, has this dream about building a beautiful big house, and I, despite being worried about the big expense, reluctantly agreed--to make her happy. Knowing it would cost a lot, I started making more money by working many extra hours in a second job; I've been working seven days a week. Recently this has been wearing me out and negatively affecting my health. My parents, worried by how my health has been deteriorating, told me to stop working the second job and offered to make a large downpayment and to fund my kids' college funds. So that's why my parents offered to do this.

Thanks for the link. I just read parts of it and will read the rest later tonight. But I still have a few questions. It says that my parents can jointly give the money. Does it then have to come from a joint account? And should the checks be payable to me AND my wife or me OR my wife or just one of us (I mean the checks my parents write to us and that we put in the bank before we write a check to the builder--I don't suppose the money has to go directly from my parents to the builder). Is there also an exclusion of $11,000 for the money my parents give to my kids for college or other expenses? Also, if my parents ever went beyond the $11,000 limit in the past (I'm not sure if they did), can the IRS tell them so that they can know? How does the IRS keep track of it? I just want to make sure that I do everything correctly and legally. Thanks.

Delta said: <<Here's all the info on gift tax (and estate tax) that you need (read the 'Unified Credit' and 'Gift Tax' sections)

Basically, Megan is right. Each person can give each person $11k in each year without any implications. Beyond that, you begin having implications, but it first goes against your lifetime 'unified credit' of $345,800

Let's say they gave you $50K. By Megan's example above, $44K is completely free and clear. The other $6K they have to report as beyond the exclusion. Let's say they're in the 28% tax bracket, so they'd pay $1680 in tax. All they do is subtract is amount from their lifetime unified credit of $345,800, leaving them with $344,120 remaining in their lifetimes. Only if they get this number down to zero in their life do they need to actually start paying taxes on gifts.

In fact, the $345,800K (representing up to ~$1 million) in gifts may apply to each of them separately, though I'm not sure about that - read the IRS pub for full details.

P.S. You may think it's none of my business, and it may not be, but before you embark on something like this, I would recommend you buy or borrow the Millionaire Next Door and each the chapter on EOC - Economic Outpatient Care.

Your parents helping to buy you a house can lead to overspending for the rest of your life. If they help you buy a house with a mortage you can't afford, then you'll have trouble saving forever. If it's in a higher status neighborhood, you may feel compelled to pay more to keep it up, pay more for nicer cars to impress the neighbors, send your kids to private school because those in your neighborhood look down on the public schools, etc, etc, etc. It depends on the situation and the people involved, but more often than not, large gifts from parents cause more financial problems than they solve.

Just something you may want to think about and a book you may want to pick up before you make a big decision like this.>>
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