Buying a house for a child

[Sunset]

.......

I don't know if there is a way to keep our gifts & his inheritance stay with our son in case of their divorce ? We live in Florida.

In many places (but could depend where he lives), a gift can be excluded from divorce if given to him, AND he never mixes it with the marriage money in ANY manner. Meaning he has to deposit it to an account only in his name, and never use the money for a shared purpose (mortgage, family bills, etc).
Still the other side in a divorce will claim the money, and it will have to be proven it is excluded.

 

[MikeTN]

When my son was in college he drove a used but nice Toyota pickup. One of his classmates said, "That's a nice truck your father bought for you". He told me he was proud to reply that he ran a lawn mowing service in High school and he bought it with his own earnings.
I think your son would like to be able to say he bought his house with his own earnings. My suggestion: offer to reimburse him for his FICA tax each year. Actually 2x his tax as his employer's part comes out of his productivity.
Our generations Social Security is being paid for by the younger generation... so it's not a handout, rather a recognition of the burden he is asked with.
Let him take out a conventional mortgage, and he can build up his own credit record.

 

[Sunset]

A credit record can easily be built with just credit cards, paid off in full every month. A year of that and a person can have a 750->800 credit score or more.
No need for a mortgage or car loan.

 

[Time2]

When my daughter was in college, we got her a credit card with her name on our Mastercard. Years later when she didn't have or at least didn't use the card, she said don't take my name off the credit card, having my credit associated with it makes my credit look really good.

 

[rmorris50]

I am all about letting people do things for themselves and run their own affairs, and gaining their own identity, independence and experiences. So I would probably be inclined to let DS buy his own house and just gift him money for down payment and then mortgage payments going forward.

 

[tryan]

I was always told "We raised you to fly" .... I wouldn't clip a 29 yo's wings. Not even for spending/financial concerns.

 

[Time2]

I'm not clipping his wings, he is free to do as he pleases, I just plan on helping him financially with his plan. He did research apartments and decided that was too costly and didn't give him room for a workshop. He is getting into woodworking and fixing things in general. He knows what direction he wants to go.
I'm leaning towards helping with the down payment for him to get a mortgage and then gifting every year to help pay down the mortgage.

 

[MarieIG]

I'm not clipping his wings, he is free to do as he pleases, I just plan on helping him financially with his plan. He did research apartments and decided that was too costly and didn't give him room for a workshop. He is getting into woodworking and fixing things in general. He knows what direction he wants to go.
I'm leaning towards helping with the down payment for him to get a mortgage and then gifting every year to help pay down the mortgage.

I like that idea.

Perhaps you and your DW might want to give him 34k each year, at first towards his downpayment fund, and then to pay down the mortgage. (I advised my own DS who is saving for a house to put his downpayment funds in short term treasuries and high paying money market accounts, i.e. sources of income which would not be expected to fluctuate with the market, so he could depend upon the funds being there when he is ready to pull the trigger.)

 

[gwill1010]

As I understand it, each person can gift another $15K each year, without declaring anything each year.
A person can also gift a LOT more, say $400,000 to a person. The receiver doesn't declare it as income. The giver has to fill out a form 709 for the IRS stating the value of the gift, and this amount is counted against their lifetime exemption for estates being tax free upon death.

https://financeband.com/can-you-give-someone-a-large-sum-of-money

Youve refreshed my memory. Thanks.

 

[gwill1010]

Do you have an actual citation for this? There's nothing I can find in the tax law that says you will have imputed income if you allow a family member to live for free in a home you own (or in a room in your home, or in a mother-in-law apartment over your garage).

Some people do say you should file a gift tax return if the fair market value of the rent would be more than the gift tax exclusion, which is $17K per donor-donee pair this year. The Wineman v. Commisisoner case is often cited as a basis for this opinion. But unless you've given away $12.9M during your lifetime, no actual tax is owed.

I'll look some more, but...
https://www.reedyandcompany.com/blog/rent-to-a-family-member-tax-rules-you-should-know/

 

[gwill1010]

Do you have an actual citation for this? There's nothing I can find in the tax law that says you will have imputed income if you allow a family member to live for free in a home you own (or in a room in your home, or in a mother-in-law apartment over your garage).

Some people do say you should file a gift tax return if the fair market value of the rent would be more than the gift tax exclusion, which is $17K per donor-donee pair this year. The Wineman v. Commisisoner case is often cited as a basis for this opinion. But unless you've given away $12.9M during your lifetime, no actual tax is owed.

https://www.irs.gov/pub/irs-pdf/p527.pdf

 

[MarieIG]

https://www.irs.gov/pub/irs-pdf/p527.pdf

I did not read that carefully, but it seems to apply to rental properties.

 

[Dash man]

Do they pay rent and are you declaring the income? The IRS expects you to claim a fair market income weather they are paying you or not. Best of luck.

Can you provide a reference for this? If I recall, my research said if you don’t collect rent and don’t deduct expenses, there’s no reporting requirement.

 

[gwill1010]

Can you provide a reference for this? If I recall, my research said if you don’t collect rent and don’t deduct expenses, there’s no reporting requirement.

I think you're right. We charge our son rent and deduct expenses. I apologize for not thinking this through.

 

[cathy63]

I'll look some more, but...
https://www.reedyandcompany.com/blog/rent-to-a-family-member-tax-rules-you-should-know/

https://www.irs.gov/pub/irs-pdf/p527.pdf

Your statement that I questioned was "The IRS expects you to claim a fair market income weather they are paying you or not."

But neither of these sources says you should report income you never received on your tax return. Both of them just say that a residence rented at less than fair market value is treated as if it were your own second home. You can't use Schedule E. Instead you report the rent you actually received on Sched 1 and you deduct mortgage interest and prop tax on Sched A.

edit: Sorry, I didn't see your most recent post until after this one.