Hi all,
This is my first post and I could use your input. My husband is a frequent reader and sometimes commenter here, and because our question includes specific details that could be recognized by parties involved, we thought I should create my own account that does not have a traceable history of financials.
I have relatives that want to help their son with the downpayment for a condo. The two parents want to give him $40k, but as a loan that he will repay, presumably with no interest or payment schedule. The son is headed into a lucrative field and will have no problem paying this back barring some sort of unforseen dehabilitation.
They are also currently gifting him with $850/month to support living expenses while in grad school.
The mortgage lender does not want the son to have a $40k family loan on top of the mortgate, so a loan will not work. For some reason we can't discern, though, the lender also has a problem with the parents just gifting the $40k for the downpayment because of the ongoing $850/month support. Can anyone explain why that is a problem? If the parents sign a gift letter stating they expect no repayment, why would the bank have concern about the interaction b/t the $850/month and $40k lump sum gifts? We did not understand why this was a problem.
To get around this, the parents asked if (1) Parents could gift us the $40k, (2) we gift $40k to the Son, and then (3) I guess he pays it back to the parents based on whatever casual agreement they have.
We see several problems:
1) We don't want to have to deal with form 709 over an extra $4k above the annual exclusion. But maybe it doesn't matter - do you have to keep filing it every year thereafter, or is it just a one-time thing? We don't care about losing $4k of the lifetime exemption; just care about the hassle over an extra $4k.
2) This looks like a step transaction for the parents to be able to avoid filing form 709 and eating away $4k of their lifetime exemption, because they can gift $40k to us as a couple without reporting but could not do so by gifting directly to the Son (not that $4k is much compared to the lifetime exemption amount).
3) If the Parents are doing a zero-interest loan directly to the Son, they would need to report imputed interest as income on their taxes. Not our problem, but still adds to the mess.
4) But what if the amount is $36k, so no gift reporting is required. Parents gift us $36k with no expectation that we repay them. We gift Son $36k with no expectation that he repays us. Son gifts/repays $36k to Parents over some amount of time. Again, this looks like some weird step transaction, but now instead of avoiding gift tax/reporting, it is avoiding structuring this as a loan. Problematic, no? Does someone need to report imputed interest, and is there any chance it would be us?
5) Parent offered to make the gift to us in paper currency if that made us feel better about whether these identical gifts from Parent to us and us to Son would somehow get flagged to the IRS. That does not make us feel better. The withdrawal and deposit would be large enough to be reported to the IRS anyway.
6) Anything else we are missing?
The mortage lender suggested going through us and having my husband write the check to the Son because my husband has a different last name, which seems very fishy. Also, if we are gifting $36k to Son from a joint account, does it matter if we each write a check for $18k versus my husband writing a check for $36k. From what we've, strictly speaking it does not matter but people seem to recommend it anyway for clarity.
This is my first post and I could use your input. My husband is a frequent reader and sometimes commenter here, and because our question includes specific details that could be recognized by parties involved, we thought I should create my own account that does not have a traceable history of financials.
I have relatives that want to help their son with the downpayment for a condo. The two parents want to give him $40k, but as a loan that he will repay, presumably with no interest or payment schedule. The son is headed into a lucrative field and will have no problem paying this back barring some sort of unforseen dehabilitation.
They are also currently gifting him with $850/month to support living expenses while in grad school.
The mortgage lender does not want the son to have a $40k family loan on top of the mortgate, so a loan will not work. For some reason we can't discern, though, the lender also has a problem with the parents just gifting the $40k for the downpayment because of the ongoing $850/month support. Can anyone explain why that is a problem? If the parents sign a gift letter stating they expect no repayment, why would the bank have concern about the interaction b/t the $850/month and $40k lump sum gifts? We did not understand why this was a problem.
To get around this, the parents asked if (1) Parents could gift us the $40k, (2) we gift $40k to the Son, and then (3) I guess he pays it back to the parents based on whatever casual agreement they have.
We see several problems:
1) We don't want to have to deal with form 709 over an extra $4k above the annual exclusion. But maybe it doesn't matter - do you have to keep filing it every year thereafter, or is it just a one-time thing? We don't care about losing $4k of the lifetime exemption; just care about the hassle over an extra $4k.
2) This looks like a step transaction for the parents to be able to avoid filing form 709 and eating away $4k of their lifetime exemption, because they can gift $40k to us as a couple without reporting but could not do so by gifting directly to the Son (not that $4k is much compared to the lifetime exemption amount).
3) If the Parents are doing a zero-interest loan directly to the Son, they would need to report imputed interest as income on their taxes. Not our problem, but still adds to the mess.
4) But what if the amount is $36k, so no gift reporting is required. Parents gift us $36k with no expectation that we repay them. We gift Son $36k with no expectation that he repays us. Son gifts/repays $36k to Parents over some amount of time. Again, this looks like some weird step transaction, but now instead of avoiding gift tax/reporting, it is avoiding structuring this as a loan. Problematic, no? Does someone need to report imputed interest, and is there any chance it would be us?
5) Parent offered to make the gift to us in paper currency if that made us feel better about whether these identical gifts from Parent to us and us to Son would somehow get flagged to the IRS. That does not make us feel better. The withdrawal and deposit would be large enough to be reported to the IRS anyway.
6) Anything else we are missing?
The mortage lender suggested going through us and having my husband write the check to the Son because my husband has a different last name, which seems very fishy. Also, if we are gifting $36k to Son from a joint account, does it matter if we each write a check for $18k versus my husband writing a check for $36k. From what we've, strictly speaking it does not matter but people seem to recommend it anyway for clarity.
Statistics: Posted by dancer81 — Mon Apr 15, 2024 2:15 pm — Replies 1 — Views 103