donheff
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Just give her the $ and file the appropriate form with IRS.
Lending/Gifting $ for daughter's house down pmt?
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calmloki
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You understand correctly. We gifted in excess of the annual limit, so our tax person just filled out a form XXX - don't remember.
Rambler
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We gifted our DD and DSIL $100000 to use as a down payment on their home. We gifted them $12.5k each, from each of us in December (total $50k) and then the same thing again in January Of 2018 and 2019, respectively. We had been planning to do this, once they were ready to settle down in one place. We did it this way to stay well within the gifting limits that would cause extra taxes or create headaches once we were gone.
Since they were married, they had lived in Hawaii, then Hong Kong, the Utah, then San Francisco, then SoCal, over the course of the seven years they had been married. The different locations was because they were married while still in the university, then went for one internship, then a masters degree, then another internship, then a relative on DSIL’s side had begged him for years to work with him, that turned out to be a total disaster.
After he had essentially resigned from that, they came to visit us in a new home that we had just bought (so that we could leave California and it’s various issues). Our home is bigger and has a basement. They liked our area quite a bit, so he started looking for a job and snagged a good one in his area of expertise, and they lived with us (in the basement) while they worked on rebuilding their savings from the disastrous experience of working with the relative (during which a “learning wage” was promised, but never delivered....they didn’t have to pay for food or rent because they lived with the relative, but, they did have to buy their own health and car insurance, plus baby diapers and medical care for a newborn, etc). So they had to rebuild their savings after burning thru it in less than a year, because he received no pay whatsoever.
In any case, they did rebuild their savings while they lived with us, and we were beginning to see the signs of them being responsible enough to own and care for a home. They stayed with us for 8 months. So, we proceeded with what had always been our desire and plan, to gift them a significant amount toward their down payment.
We did have a stipulation that every cent we gifted had to go to the down payment. They needed another car as well, but we required that they figure that out themselves. The money was deposited into an account that I have access to (which was the account we used to get money to her when she was in college), and we had his name added to the account. That way, we could see that our contribution actually all went to buy the home.
A year later, our relationship is still fine. They have been in the home for 14 months now and haven’t missed or been late on any payments. His job is stable, and even though he was hired later than some on the team he worked with, when the coronavirus layoffs came, he wasn’t cut, while the early hires were (it is a startup, and he is very good at what he does). In the meantime DD has brought us our second grandchild and is still a SAHM, but does teach English online to one of her former students from SFO (she is a certified TESOL teacher), and she makes a bit on the side as a photographer. We see the grandbabies a couple times a week...not too much, not too little...just the right amount.
Since they were married, they had lived in Hawaii, then Hong Kong, the Utah, then San Francisco, then SoCal, over the course of the seven years they had been married. The different locations was because they were married while still in the university, then went for one internship, then a masters degree, then another internship, then a relative on DSIL’s side had begged him for years to work with him, that turned out to be a total disaster.
After he had essentially resigned from that, they came to visit us in a new home that we had just bought (so that we could leave California and it’s various issues). Our home is bigger and has a basement. They liked our area quite a bit, so he started looking for a job and snagged a good one in his area of expertise, and they lived with us (in the basement) while they worked on rebuilding their savings from the disastrous experience of working with the relative (during which a “learning wage” was promised, but never delivered....they didn’t have to pay for food or rent because they lived with the relative, but, they did have to buy their own health and car insurance, plus baby diapers and medical care for a newborn, etc). So they had to rebuild their savings after burning thru it in less than a year, because he received no pay whatsoever.
In any case, they did rebuild their savings while they lived with us, and we were beginning to see the signs of them being responsible enough to own and care for a home. They stayed with us for 8 months. So, we proceeded with what had always been our desire and plan, to gift them a significant amount toward their down payment.
We did have a stipulation that every cent we gifted had to go to the down payment. They needed another car as well, but we required that they figure that out themselves. The money was deposited into an account that I have access to (which was the account we used to get money to her when she was in college), and we had his name added to the account. That way, we could see that our contribution actually all went to buy the home.
A year later, our relationship is still fine. They have been in the home for 14 months now and haven’t missed or been late on any payments. His job is stable, and even though he was hired later than some on the team he worked with, when the coronavirus layoffs came, he wasn’t cut, while the early hires were (it is a startup, and he is very good at what he does). In the meantime DD has brought us our second grandchild and is still a SAHM, but does teach English online to one of her former students from SFO (she is a certified TESOL teacher), and she makes a bit on the side as a photographer. We see the grandbabies a couple times a week...not too much, not too little...just the right amount.
When DH and I were saving for the down payment on our first (and only) house purchase my Dad said that when we were ready he'd match whatever we had as a gift. We lived very cheap for a few years and I am a natural saver. We saved up $11,000. When it was time to get serious I told my Dad what we had and he was very surprised. He said he couldn't match that but he could do $8,000, would that be enough? Oh, yes, that's plenty. We were very grateful!
We put $15,000 down on a $60,000 4 bedroom, 2 bath house. This was in 1983 and we are still here!
I do remember when we were signing all the closing papers there was one affirming that none of our down payment was a loan. Do they still require that one?
For our son and DIL, we gave them a sizeable cash gift when they got married in Beijing and there was no traditional wedding celebration. They bought their first house about 2 years later. We gave them a "red envelope" with a check because I knew they would need stuff like a lawn mower, outdoor grill, furniture, etc......
We put $15,000 down on a $60,000 4 bedroom, 2 bath house. This was in 1983 and we are still here!
I do remember when we were signing all the closing papers there was one affirming that none of our down payment was a loan. Do they still require that one?
For our son and DIL, we gave them a sizeable cash gift when they got married in Beijing and there was no traditional wedding celebration. They bought their first house about 2 years later. We gave them a "red envelope" with a check because I knew they would need stuff like a lawn mower, outdoor grill, furniture, etc......
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Sunset
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+1
Since about 50% of marriages fail, the odds are not good, no matter how wonderful the couple is today.....
I know it happened to me...
Sanstar
Recycles dryer sheets
Same for us. We have gifted money (and in one case, a house) to each of our kids for house purchases, IVF expenses, cars and to pay of student loans. Except for the house, we don’t exceed the annual limits for taxes and won’t hit the $5 M lifetime limit. I learned early on that a “grant” is easier on family harmony than a loan; won’t “grant” any money that will/might affect our own financial security; and lastly, I just don’t want to be a money lender.
I do keep track to assure equity and since they will get whatever is left after we go, we’re happy to share now.
GravitySucks
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Thanks to all for verifying my understanding.
someday soon
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OP here ....so much to consider!
Thank you, thank you, thank you for so much input and perspective.
Hopefully other folks besides me have gained some new insight from this thread.
An old friend of mine is going to be our DD & DSIL's realtor -- meeting up with him in a couple days to be sure we don't do anything too strange!
Thank you, thank you, thank you for so much input and perspective.
Hopefully other folks besides me have gained some new insight from this thread.
An old friend of mine is going to be our DD & DSIL's realtor -- meeting up with him in a couple days to be sure we don't do anything too strange!
In 2000, friend's parents "gifted" money so friend and DH could buy in VHCOL city and qualify for mortgage. In 2008, same parents stock portfolio tanked and they needed cash. Friend had to refinance home to pay back parents. What was supposed to be an early inheritance was taken back. Luckily, the value of the home had risen significantly and they were able to do a cash out refi. Make sure you don't need the money back if you give it out, whether it's a loan or a gift.
gooddog
Recycles dryer sheets
There are limits on how much you can gift. If you want to 'gift', gift up to the allowable $ amount that won't cause a taxable situation. Then you can write a check for the rest, and in the memo put "loan @ x.xx percent". The percentage amount that must be charged by law to a family member recently hit an extremely low number - but I can't remember what it was...something under 1/2 a percent. This gives you the flexibility of using both methods to get $ to the kids, while avoiding taxes. Has the bonus of being legal too.
Koolau
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We gifted DD a good chunk of her down payment of first house. We headed off the mortgage company's questions whether the amount was a loan or gift by providing a notarized accounting of the gift (not loan) so that DD could still qualify for the remainder of the loan. Worked like a charm.
Regarding loans to friends or family: Don't ever lend money to friends or family. It ruins their memories.
Regarding loans to friends or family: Don't ever lend money to friends or family. It ruins their memories.
pb4uski
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Technically yes, but as a practical matter there are no limits... unless you consider $23.16 million for a married couple to be limiting.
Souschef
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I did not need a notarized statement, but found a form on line that satisfied the mortgage company.We gifted DD a good chunk of her down payment of first house. We headed off the mortgage company's questions whether the amount was a loan or gift by providing a notarized accounting of the gift (not loan) so that DD could still qualify for the remainder of the loan. Worked like a charm.
Regarding loans to friends or family: Don't ever lend money to friends or family. It ruins their memories.
I will have to fill out a form 709 whenever IRS issues the 2020 form.
As a side question, (not that I would do it) how does the IRS even know what happened??
pb4uski
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I don't think that they do unless you exceed the annual limits and file a gift tax return (even though no gift tax would be due).
HI Bill
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Since your DD and DSIL are showing responsibility, I'd make them an offer: I'd match the amount of down-payment they manage to save, as a gift, no strings attached. Understanding and accepting, that if their marriage fails, your DD will lose half.
FWIW, I don't believe in gifting large amounts to kids/couples just starting out, unless they have established careers, and responsible financial behavior.
I have a FIRE friend who let his daughter, SIL, and kids, move into one of his rental properties, at a discounted rental rate. They have to go to dinner twice a week at his house, as a requirement for the subsidized housing. Too much control and $ in the relationship, for me.
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
Recycles dryer sheets
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:
Sunset
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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.
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
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Loans
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."
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."
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
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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.
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
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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.
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
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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.
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.
Yes - and fill out the Fed Gift Tax Return - no tax, just need to fill out - because it's over $15K
