Lending/Gifting $ for daughter's house down pmt?

[gerntz]

Gave son several % of our assets some 15 years ago not knowing what he would do with it for sure. We were still fine. He & his spouse bought a house - as I suspected they would - and still live in it with our grandkids. Couldn't be happier with the decision. They are not extravagant people.

[Chapter 3]

Thank you OP - Very timely post for me. Doing similar for DS and DDIL. It will be a gift for the reasons stated by many above - less complicated. I suppose I should track it for future inheritance but then I have to somehow value all of the sweat equity I applied to other DS house. Thank you to SecondCor521 for this reminder:

Quote:

Originally Posted by SecondCor521 If you're making it a gift, you should be aware of the annual gifting limits and that they are from any person X to any person Y, so between you and your spouse you can give up to 4 times the annual limit by writing four checks - from you to DD, you to DSIL, your spouse to DD, and your spouse to DSIL.

[Sunset]

Quote:

Originally Posted by gerntz Gave son several % of our assets some 15 years ago not knowing what he would do with it for sure. We were still fine. He & his spouse bought a house - as I suspected they would - and still live in it with our grandkids. Couldn't be happier with the decision. They are not extravagant people.

Nice to hear it works out sometimes.

[samcat]

When we bought our house 25 years ago, we pretty much only had enough for the closing costs. I had been in school full time for a year and, at the time we bought the house, was only working part-time (started full-time about the same time we bought the house). We borrowed our whole down payment from our parents. Each one (husband's divorced parents and my parents) wrote a letter saying it was a gift which the mortgage company accepted.

Of course, it was not a gift. His parents were charging interest so we paid off my parents first. Then paid off his dad and then his mom. I think in the end, both of his parents forgave the interest. We had to borrow $30k and we had it all paid off with 3 years.

If you were to gift more than $15k per person per year, there is no tax...you might have to file a gift return but the gift exclusion amount is so high, you would not incur tax.

We would not change anything :-). Still live in the house that we bought in 1994. Live in California so it has been a great investment.

[davebarnes]

I am in the loan group.

In 1977, my wife and I borrowed $4K from her mother so we had the 20% down on $52K purchase. Formal loan with paperwork. Paid it off in less than a year.

In 1985 my wife and I borrowed $15K from my mother so we could assume the existing FHA mortgage on the house we were buying for $135K. Formal loan at market rate. Paid it off in a few years.

Our daughter, and her husband, have never asked for money as they believe "we can stand on our own."

[Buckeye]

Quote:

Originally Posted by cathy63 DH and I were on the opposite side of this when we bought our first home. * gift or loan and why? We had saved 10% of the property value for a down payment and we asked FIL (father-in-law) for a loan of 10% so that we would not have to pay PMI on the primary loan. He had previously made loans to some of DH's siblings for other things, so this was an established practice in the family. We paid him the same interest rate as we were paying the bank on the rest of the loan. We had a regular 30 yr payment schedule laid out, but we were able to continue saving and paid off that loan within a couple of years. * who paid taxes on what ( if any )? FIL & MIL paid taxes on the mortgage interest we paid to them, and we took the corresponding deduction on our taxes * are there any "gotcha" or helpful laws we should know about? can't think of any * did your private gift/loan have to be disclosed in the main mortgage/lending process? ..did it affect the mortgage terms? Yes, it had to be disclosed. It was a second mortgage and recorded as a lien on the deed. * would you change anything if you could have a do-over? No, it worked out well for us.

And, from what I understand, it's that lien on the deed that allowed you to deduct the interest you paid as home mortgage interest.

[brett]

When we were considering this our accountant gave us a huge heads up. Son was living with, not married.

The issue was assets in case of separation. Of course it depends on the amounts. But there are ways to protect your monies that you have given to you children.

My grandfather's brother put his SIL part way through med school. He bought them a house. The SIL was on the payroll at his business, along with a car. House was purchased as a gift BUT remained in my grandfather's name. Car in the company name.

SIL finished med school in LA and almost immediately ended the marriage. House was safe, zero assets, zero alimony because of how that cagey Scot had listened advice and structure his gift. Daughter kept the house and the car.

[Dash man]

We chose a different path for our two sons. DS#1 moved with his family into a rental townhome we owned. They have toddler twins and can’t afford child care, so daddy stays home. For now we’re not charging them rent since he can’t work, but we’re fine with it to have them close.
DS#2 is moving to be close to us next month. We’re in the process of buying a townhome for them to live in just a short distance from us. They will pay rent to cover taxes, HOA and insurance.
We decided to own the properties to allow them to inherit them when we pass. They will inherit them at a higher cost basis and there won’t be any issues in our lifetime should either get divorced (though things are good with all as far as we can tell). If they choose to move elsewhere, we can deal with the sale rather than have them worry about it. We are fortunate to not have any mortgages. They understand that if we get into a financial bind, we may have to sell them, but we have plenty of cushion.

[nvestysly]

I'm repeating a few things but maybe saying them in a different way will be helpful...

You and your spouse can both gift each person (daughter and son-in-law) $15,000 in 2020 without any tax consequences.

You: $15,000 to daughter + $15,000 to SIL = $30,000

Spouse: $15,000 to daughter + $15,000 to SIL = $30,000

Total: $60,000 If that's not enough you can do the same on January 1, 2021.

The mortgage company may very well look back to see you gave the money. You and your spouse will then have to provide a letter indicating the money is a gift with no strings attached. Back in the day, mortgage companies only looked back 3 - 6 months. I realize you're not trying to hide anything but giving the money sooner rather than waiting until nearer to the closing date may make things easier.

Do not give a "gift" with any expectation that it will be returned. If you expect it to be returned then it's not a gift.

If you want to make a loan, that's fine and the recommended method is to record it properly, along with the proper terms (interest rate, payments, due date, etc.). The IRS establishes guidelines for interest rates. For instance you cannot make a proper loan with a 0% interest rate or an interest rate that is dramatically lower (or higher) than rates established by the IRS. The idea of a life insurance policy that would pay off the loan is a good thought, but it may not be needed provided the loan is recorded in the county of record against the property. You will be an official lien holder and will be paid back. However, the life insurance would give you some "belts & suspenders" as the British sometimes say.

[gerntz]

Quote:

Originally Posted by GravitySucks Anyone very familiar with these rules? From what I understand I can gift DD $15k. She has no husband and my DW is deceased so that seems the limit under the annual gift exclusion rules. But under the liftime gift exemption rules it looks like I simply have to report the portion over $15k so it is tracked to be under the $11m lifetime limit. I want to gift her $25k or so. I will never hit the $11m lifetime limit. So can I just gift her the $25k this year if the home buying opportunity comes up?

Yes - and fill out the Fed Gift Tax Return - no tax, just need to fill out - because it's over $15K

[gerntz]

Quote:

Originally Posted by nvestysly I'm repeating a few things but maybe saying them in a different way will be helpful... You and your spouse can both gift each person (daughter and son-in-law) $15,000 in 2020 without any tax consequences. You: $15,000 to daughter + $15,000 to SIL = $30,000 Spouse: $15,000 to daughter + $15,000 to SIL = $30,000 Total: $60,000 If that's not enough you can do the same on January 1, 2021. The mortgage company may very well look back to see you gave the money. You and your spouse will then have to provide a letter indicating the money is a gift with no strings attached. Back in the day, mortgage companies only looked back 3 - 6 months. I realize you're not trying to hide anything but giving the money sooner rather than waiting until nearer to the closing date may make things easier. Do not give a "gift" with any expectation that it will be returned. If you expect it to be returned then it's not a gift. If you want to make a loan, that's fine and the recommended method is to record it properly, along with the proper terms (interest rate, payments, due date, etc.). The IRS establishes guidelines for interest rates. For instance you cannot make a proper loan with a 0% interest rate or an interest rate that is dramatically lower (or higher) than rates established by the IRS. The idea of a life insurance policy that would pay off the loan is a good thought, but it may not be needed provided the loan is recorded in the county of record against the property. You will be an official lien holder and will be paid back. However, the life insurance would give you some "belts & suspenders" as the British sometimes say.

As long as your assets are less than $11M & you expect them to stay below that, you can give them everything you have at anytime. Just need to fill out the Fed Give Tax Return for amounts over $15K/yr/person, but there will be no tax. The $15K limit just avoids the Tax Form.

[mpkcapt]

Technically, If I gift my son any amount of money(+ or - the $15k). Doesnt he still have to pay income taxes on it ??

[cathy63]

Quote:

Originally Posted by mpkcapt Technically, If I gift my son any amount of money(+ or - the $15k). Doesnt he still have to pay income taxes on it ??

No! Gifts are not income for the recipient. You can give him any amount you want and he will not have to pay tax or report anything to the IRS. You just have to file a gift tax return for any gift over $15K, but you will not owe any tax until the cumulative gifts exceed $11.4M.

[Sunset]

Quote:

Originally Posted by cathy63 No! Gifts are not income for the recipient. You can give him any amount you want and he will not have to pay tax or report anything to the IRS. You just have to file a gift tax return for any gift over $15K, but you will not owe any tax until the cumulative gifts exceed $11.4M.

+1

Said perfectly, anybody can give me $11,000,000 and they won't pay tax, and I won't pay tax. They just have to fill out a form to say they did it, but no tax.
I'll wait while interested folks get a pen .....

[Sunset]

Quote:

Originally Posted by nvestysly I'm repeating a few things but maybe saying them in a different way will be helpful... You and your spouse can both gift each person (daughter and son-in-law) $15,000 in 2020 without any tax consequences. ....

Anybody can give anyone $11,000,000 That's 11 Million Dollars without any tax consequences for giver or receiver.

The $15,000 limit is simply there so the giver does not have to fill out a (non-taxable) report to the IRS.

[donheff]

Quote:

Originally Posted by Sunset Anybody can give anyone $11,000,000 That's 11 Million Dollars without any tax consequences for giver or receiver. The $15,000 limit is simply there so the giver does not have to fill out a (non-taxable) report to the IRS.

The $15K per year per giftee also doesn't count against the $11M lifetime limit. So you can give all of your kids and grandkids $15k ea every year and still have $11M pass tax free at death. Not something I'm going to need to worry about.

[pb4uski]

It is amazing to me the lack of understanding of the gifting rules... especially when they are all readily available on the internet.

https://lmgtfy.com/?q=gifting+rules+2020

[athena53]

DS bought his first house in a LCOL area without our help- his Aunt had put aside money for his education and while we used it to pay half of his college costs, we paid the other half and the amount left over (it was UGMA, not 529) went for a down payment.

Eight years later he'd married, they had 2 kids and wanted a 3rd. House was getting crowded. They found a bigger place they loved and DS asked me if I'd give or loan them $7-$10,000 to keep the monthly payments at the same level. He'd done a good job of working through the numbers and he'd been very responsible with the other house, so we just gave him $10,000. I don't remember having to sign a gift letter.

I bought my first house with a friend and we borrowed $2K from his sister and BIL. (This was 1978.) They write it up as a secodn mortgage- I was fine with that and even though the relationship with the friend foundered I paid the second mortgage off a bit early.

One horror story from my family: My Uncle (Mom's brother) and Aunt borrowed $$ from Grandma and Grandpa for their first house with the understanding that they'd pay it back when they sold the house. In the meantime Grandma died and Grandpa remarried. Step-Grandma, who was a real piece of work, found out about the loan and nagged Grandpa till he got Uncle and Aunt to pay it back even though they were still in the house.

[Sunset]

Quote:

Originally Posted by pb4uski It is amazing to me the lack of understanding of the gifting rules... especially when they are all readily available on the internet. ....

+1
Exactly what I was thinking.
Now I'll admit to be lazy and not being precise to the penny about the rules, but I figure if one is going to give away a few million dollars, they can find out the precise number.