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You started off fine, but went off course. If this is the first gift the parents gave which exceeded the annual gift limit, the excess $6000 would be taxed at 18%, not 28%.

Whoops. Well, I got the general idea, never claimed to be an expert. I'm sure the documentation can correct any details I messed up.


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.

I certainly understand your situation and it is more certainly up to you, your wife, and your parents to decide what and how is appropriate for you. Also, I think it's absolutely critical that your wife is on the same page as you as far as living within your means and saving.

Don't get me wrong, I think it's very nice of your parents to make those offers, as long as they don't lead to future need for economic crutches. For instance, I wouldn't use a large downpayment gift as an excuse to get a larger house than you can't afford and will have trouble meeting the mortage on, or have to sacrifice your health and rest and sanity and savings, etc. Also, while you may not feel pressure to get a Lexus or spend highly now, would you if you lived on a block where that was the norm? Would your wife? It's all important things to think about it.

As a general number, if you're parents were giving you $50K, you could certainly use that as a excuse to buy a house worth $50K more if you think it's wise otherwise, and thereby have the same mortage payments as you would have otherwise. If if you use a 20% downpayment as a change to buy a house worth $250K more, then you're probably asking to be on economic assistance for a long long time. Obviously I'll leave the judgements to you, and I'm glad you'll pick up Millionaire Next Door, as it shows you ways to think about these things and cause and effect relationships you may have never realized before, but the decision is ultimately yours.

If you read the book and decide that your wife is a 'UAW' (under accumulator of wealth) it may be good to have her read the book and discuss your real goals in life. Is financial independence and a long and happy retirement more important? Or is a big house with a nice garden?


As for your question on the gift tax, I'm not sure of all the details - joint checking, etc - do read the document in full and see if you can find any other related ones. You can also call up and talk to the IRS (they're nicer than you imagine), or if they can't answer your question via their service, it may be worth paying a small sum to a tax advisor to get a certified answer.

As for college expenses, I think Megan did a good job showing the 3 (or I guess 4) ways in which they can give you money for that. They can give it directly to you (same gift tax rules and yearly limits apply), they can give it to your child (often by way of a deposit in a custodial (UGMA/UTMA) account or a trusto, which is then a gift to the child, also subject to the $11K limit, but separately from that given to you, or they can make a contribution to the 529 college savings plan that is for your child (check your state's rules on 529 plans for details, rules, and limits on that).

Also, Megan mentioned that just paying the tuition bill when it arrives is not counted as a gift. I believe that is covered in the IRS link I sent you before. Definitely check into that option too.

As far as the IRS keeping track of it, as far as I know, they don't, but I most certainly could be wrong about that. Your parents are responsible for making sure they report all things legally. If it happened in the past and they didn't report it, well, either they may want to look into it and do amended returns, or they got away with it - depending on your scruples and ability to research the facts. I do believe the IRS gets notified of large deposits though, so it could play into the odds of triggering an audit.
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