Need Some Advice

[street]

Okay, here is the scenario.
My son has a new home and has about 100K he owes on it. He would like to buy another home that is about 400K and his home now is worth about 250K.

He has been dating a lady that is an attorney for a year and a half and eventually it sounds like they will be a couple.
She has a home also that she re-mortgaged when she got a divorce so if she sells her home, there would be very little if any profit from that sale.

I would like to help my son out if he pursues this venture of buying this different home.

How can I legally pay off his loan for the house he has now?

What do I need to do legally to show this as an inheritance gift now and deducted from legal amount?

What are my tax obligations etc. that I need to be aware of?

In this situation that I've explained is there a better way that I can help him out then the route of paying off his old home?

Any help suggestion or advice would very much be appreciated. I'm sure there is a better legally of financially that might fit this case.

He has never asked for one red penny but knowing him he would want to pay this back in time. I will be open for that option or any path that would be the best outcome.

 

[48Fire]

You can set up a loan with your son, and pay off the existing mortgage. We did this with our daughter. There are some IRS rules, so google it and you should find easy answers.

 

[bolt]

Advice you say?

Consider borrowing institutions adhere to formulas, algorithms, checks & balances preventing people from borrowing for their unknown retirements health-care, well-being & timeline ".

IRS gifting w/o taxation is 15k https://www.irs.gov/businesses/smal...oyed/frequently-asked-questions-on-gift-taxes

Best wishes....

 

[Jerry1]

I cannot give legal advice, but I think it’s worth looking into gifting rules. Everyone always talks about a $10K limit per year (or whatever the number is now). But, that’s only the number you can gift without having to file the gift tax return. My understanding is that all the gift tax return does is records the gift and “charges it” against your life time max. Until you hit your life time max, my understanding is that there’s no tax. And the limit is pretty high. So, I’d look into just gifting him the money.

 

[aja8888]

I cannot give legal advice, but I think it’s worth looking into gifting rules. Everyone always talks about a $10K limit per year (or whatever the number is now). But, that’s only the number you can gift without having to file the gift tax return. My understanding is that all the gift tax return does is records the gift and “charges it” against your life time max. Until you hit your life time max, my understanding is that there’s no tax. And the limit is pretty high. So, I’d look into just gifting him the money.

Exactly: IRS gifting article.

https://www.forbes.com/sites/ashlea...te-and-gift-tax-limits-for-2020/#2ce3e5eb2efb

 

[street]

Thanks for all the help.
I read the article but if I paid this house off for him as a gift (100K) then how is this transaction recorded for the IRS? Is there a tax code for this large gift when dong taxes so IRS is aware of this transaction? I want a legal path with no tax if at all possible. This money would come from cash CD account.

 

[aja8888]

Thanks for all the help.
I read the article but if I paid this house off for him as a gift (100K) then how is this transaction recorded for the IRS? Is there a tax code for this large gift when dong taxes so IRS is aware of this transaction? I want a legal path with no tax if at all possible. This money would come from cash CD account.

I think you will find the answers here:

https://www.irs.gov/pub/irs-pdf/i709.pdf

 

[pb4uski]

You have two options.

You could just give him $100k or however much he needs as a gift. The $100k would count against your $11.58 million estate and gift tax exemption. The gift would not be a taxable event for him or you, but you will need to file a gift tax return.

Alternatively, you can make your son a $100k loan for the property and charge him interest and have him pay you back with interest.

There would be no tax in either event. With the loan, you would have interest income and your son would have mortgage interest expense.

 

[Jerry1]

This is a good summary of the gift tax process

https://smartasset.com/taxes/how-to-fill-out-form-709

 

[Closet_Gamer]

If the interest rate on the low is low enough...maybe don't pay it off...just pay the on-going payments...would that keep the annual amount under the gift tax level?

 

[street]

Thanks so much for the great advice once again. I've said it many times the quality and knowledge of the people here is top notch.

Thanks

 

[Montecfo]

You could also loan him money and then forgive an amount equal to the annual gift tax exclusion every year. You might do that of you wish to "save" your estate & gift tax exemption for your estate.

 

[street]

Thanks again for all the suggestions and help. My son hasn't came out and asked for any money or help but was telling his mother he couldn't pull of two loans at the same time.

Today he called and I mentioned to him if he is still interested in his venture of buying a different home I was willing to discuss in any way to help him if he had a plan and if I could suggest a few things before he went through with it. He said, okay and was doing the check and balance and thinking about this action strongly.

He is a very thorough and will have all dot and lines crossed before going ahead with action. I have full confidence in what he will do and I'm not sure he would come out and say I need help in this situation but it would be a great time for us to help. He have never gave him anything to speak.

He worked and paid his way through college and only payed for an old pickup and insurance while in HS.

I'm want to help him/them but in the best way without taxation and or legally.

 

[Souschef]

I gifted my son and DIL enough to finally buy a house. I will file a form 709 when the 2020 form comes out. The annual exclusion is about $15K. That means you do not have to file the 709 form unless the gift is over that amount. Lifetime exemption is over $11 mil.

 

[pb4uski]

Other possiblities.... offer your son a low-interest bridge loan for the period that he has two homes... until he can sell the extra home.... or buy his current home from him and use it as a rental.

 

[street]

Still in the process of helping my son out but haven't done anything yet. We left it up to him and told him we would help him. He has never taken any help or have we given him much help to even speak after he left high school.

He is a very cautious person on making decision like this. My be pride but not sure, he thinks out thinks more then I would.

So, if I gift him the 100k it is simple filling out a 709, right? No tax implications for him or me, right?

So, like one poster mentioned, is loan him the money with low interest, and then gift him/them each year the max for a gift. The only thing I would be required to do in this case is write up a contract signed by both and pay the house off with a loan to him, then gift tax that amount each year to him/them. Would that be legal and a good option?

 

[EastWest Gal]

This is a good idea. But get the paperwork right. Be sure to also charge the applicable federal interest rate for the loan, which is very low. Your son can pay interest only, or you can gift him the applicable interest each year. Right now, a 3-9 year loan has an applicable federal rate of 0.45% annually for intrafamily loans.

Here’s the IRS page:


https://www.irs.gov/pub/irs-drop/rr-20-14.pdf

I did this with my cousin. The plan was to pay the loan back out of farm proceeds, but the market bottomed out. I ended up gifting two years of payments back.

 

[street]

^ for that push in one direction. I want to do this legal and right.

 

[street]

Can someone help with a Amortization Calculator online to be able to print out and attach to contract. I would need one that includes the federal tax included.

Thank you very much.

 

[target2019]

This is something I think of, and would handle it in one way or another.

The subject came up with daughter, as she may need to find 12k to pay a college bill.

1) When the existing or proposed rate is known, then we will transfer the cash, and she'll owe us the amount with interest at the Federal Funds Rate.

or

2) Just gift her the money outright.

Street,
Your situation is different in that you are pushing the gift/payoff idea, rather than the pulling I mention above. I'd be sensitive about how the child feels. You mentioned a little of that, in that he is proud and may not want to accept it. Maybe it would be more acceptable to him if it is a gift of 15K. Then next year you can ask to gift another 15K.

In any event, good luck with your decision.

 

[pb4uski]

... So, like one poster mentioned, is loan him the money with low interest, and then gift him/them each year the max for a gift. The only thing I would be required to do in this case is write up a contract signed by both and pay the house off with a loan to him, then gift tax that amount each year to him/them. Would that be legal and a good option?

Yes.

 

[pb4uski]

Can someone help with a Amortization Calculator online to be able to print out and attach to contract. I would need one that includes the federal tax included.

Thank you very much.

I don't get the federal tax included part.... your gifts are not taxable to the recipient.... so any amortization calculator will do... just make sure that you use an interest rate that is kosher with the IRS.

Even though you are gifting the payments you will still need to recognize interest on the loan on your tax return (and they can take a deduction for it if they itemize as long as the loan is secured by their home).

 

[target2019]

Can someone help with a Amortization Calculator online to be able to print out and attach to contract. I would need one that includes the federal tax included.

Thank you very much.

Here is a link to the page "Index of Applicable Federal Rates (AFR) Rulings" which shows the interest rate to apply to the loan. In a contract you'd probably want to reference this in some way.
https://apps.irs.gov/app/picklist/list/federalRates.html

There is no Federal Tax applicable to your loan idea.

If you have Excel or Google sheets there are many free amortization calculators. For example, this one (free and commercial links on the page):
https://www.vertex42.com/ExcelTemplates/loan-amortization-schedule.html

 

[OldShooter]

Something I don't think has been mentioned: Suppose you gave DS the money and then he got married and divorced. Could ex-DIL end up with half the house/half of your money? I've never been divorced and haven't studied the subject in detail, but I'd suggest that you at least ask an attorney if there are problematic scenarios with whatever strategy you choose..

 

[pb4uski]

Something I don't think has been mentioned: Suppose you gave DS the money and then he got married and divorced. Could ex-DIL end up with half the house/half of your money? I've never been divorced and haven't studied the subject in detail, but I'd suggest that you at least ask an attorney if there are problematic scenarios with whatever strategy you choose..

That might be a best case scenario... it might be that ex-DIL ends up with all the house and all the money.

That's the nice thing about the loan... the property is collateral and the annual gifting is discretionary by the lender.