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What is the best way to receive 100k from parents for a downpayment on a house without tax issues?

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May 02, 2007 3:31PM

The issue would be with the Gift Tax. However, there is a federal gift tax annual exclusion and a lifetime amount. Parents can transfer substantial amounts free of gift taxes to their children or other donees through the proper use of this exclusion. The statutory exclusion amount ($10,000) is adjusted for inflation annually, using 1997 as the base year. The amount of the exclusion for 2007 is $12,000. The exclusion covers gifts an individual makes to each donee each year. Thus, a taxpayer with three children can transfer a total of $36,000 to them every year free of federal gift taxes. If the only gifts made during a year are excluded in this fashion, there is no need to file a federal gift tax return. If annual gifts exceed $12,000, the exclusion covers the first $12,000 and only the excess is taxable. Further, even taxable gifts may result in no gift tax liability thanks to the unified credit (below). Gift-splitting by married taxpayers. If the donor of the gift is married, gifts to donees made during a year can be treated as split between the husband and wife, even if the cash or gift property is actually given to a donee by only one of them. By gift-splitting, therefore, up to $24,000 a year can be transferred to each donee by a married couple because their two annual exclusions are available. Thus, for example, a married couple with three married children can transfer a total of $144,000 each year to their children and the children's spouses ($24,000 for each of six donees). Where gift-splitting is involved, both spouses must consent to it. Consent should be indicated on the gift tax return (or returns) the spouses file. IRS prefers that both spouses indicate their consent on each return filed. (Because more than $12,000 is being transferred by a spouse, a gift tax return (or returns) will have to be filed, even if the $24,000 exclusion covers total gifts. The “present interest” requirement. For a gift to qualify for the annual exclusion, it must be a gift of a “present interest.” That is, the donee's enjoyment of the gift can't be postponed into the future. For example, if you put cash into a trust and provide that donee A is to receive the income from it while he's alive and donee B is to receive the principal at A's death, B's interest is a “future interest.” “Unified” credit for taxable gifts. Even gifts that are not covered by the exclusion, and that are thus taxable, may not result in a tax liability. This is so because a tax credit wipes out the federal gift tax liability on the first taxable gifts made in your lifetime, up to $1 million. However, to the extent you use this credit against a gift tax liability, it reduces (or eliminates) the credit available for use against the federal estate tax at givors death.