Gift tax question

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defscott627
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Gift tax question

Post by defscott627 » Tue Nov 27, 2018 11:03 pm

Hi!

My last post was about possibly taking a HELOC out of my current home to help pay for my next home (before this home closes).

We were able to get $130k from my wife's parents, no longer requiring us to get the HELOC out of the current home.

My question is with gift taxes. I know they can give us 60k (15 x 4) without filling out any forms or anything. But if they are gifting us 130k, they have to fill out the gift tax form, right? But do they not pay anything because it's less than the 5.4 million?

Also we are technically just borrowing it and will give them the 130k back. So do we give back and also fill out a gift form? :oops:

Spirit Rider
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Re: Gift tax question

Post by Spirit Rider » Tue Nov 27, 2018 11:44 pm

I'm sure the mortgage lender required certification that this was a gift and not a loan.

Your parents will have to file Form 709 to apply the excess to the annual exclusion $130K - $60K = $70K against the now $11.18M/person lifetime exclusion.

Since this was certified as a gift, you will have to gift it back, but gifts are not supposed to come with strings attached. So I'm not entirely sure.

defscott627
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Re: Gift tax question

Post by defscott627 » Tue Nov 27, 2018 11:59 pm

They have helped us with an apartment before (though only 50,000 last time) and they did have to sign the paperwork that said it was a gift and not a loan (which in their eyes it was, but a temporary gift that we eventually gave back to them-- which at the time I just figured they gifted us and we gifted back to them -- in hindsight I guess it was a loan?).

Anyway, we still ended up paying it back after closing last time and it wasn't a problem - the bank had never asked to see our assets or anything after that.

Regardless, I don't know if that changes with the Gift Tax Form? Does the IRS care if we're gifted money and then we gift money back? We are not looking to do anything illegal - we want to make sure we do it correctly. It seems strange to me that there would be no legal way for my wife's parents to temporarily give us 130K and then we give it back to them without charging some sort of interest?

I don't know if this changes anything, but the money is not needed for the down payment. We have that money - but it is a coop board that needs to see a significant amount of assets in our bank account. Because we have $200k in our current property, we needed to borrow the $130k from my wife's parents so the board can see we have liquid assets before our current apartment sells. Would it change anything if we go through the mortgage process first to get the mortgage approved, and we get gifted the money after we fill out all the mortgage paperwork this way the bank is not involved with the gift at all? That would only mean the Form would have to be signed for the IRS and then we would sign it again when we give it back? Is that allowed?

Spirit Rider
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Re: Gift tax question

Post by Spirit Rider » Wed Nov 28, 2018 1:01 am

If this was not certified to a lender as a gift it can be considered a loan. It may seem strange to you, but the IRS has very specific rules that require interest for even family loans.

The interest must either be charged or an "imputed" interest reported by the lender on their taxes as income at the Applicable Federal Rate (AFR). The short-term (< 3 years) monthly AFR for November is 2.67%

Leesbro63
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Re: Gift tax question

Post by Leesbro63 » Wed Nov 28, 2018 7:21 am

If you were going to take out a HELOC, that implies that you will still qualify for the mortgage for the new house with that loan. I can’t see why borrowing from your in-laws, instead of a bank, would change that. So it’s a loan, not a gift. Document the loan. Pay interest on it. Your in-laws should be sure to report the interest on their own tax return. If you don’t pay interest, then the non-paid interest is a gift, but small enough that it won’t require reporting as a gift. But the imputed amount would still be taxable interest income to your in-laws, I believe. If it were me, I'd pay interest to my in-laws in a clearly documented check. Probably will be a small amount since this is just a temporary bridge loan. And if the in-laws want to gift that amount back to you, they can do that without further documentation (assuming there were no other big gifts).
Last edited by Leesbro63 on Wed Nov 28, 2018 9:17 am, edited 1 time in total.

DorothyB
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Re: Gift tax question

Post by DorothyB » Wed Nov 28, 2018 8:46 am

You need to be careful - short term loans (or any loans) have "imputed interest" so your parents may be required to pay taxes on "interest" if it is a loan.

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tadamsmar
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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 9:16 am

From the standpoint of the IRS, it is either a gift or a loan.

If you provide money to your parents at a later date, then that is either a gift or a loan.

The IRS does not connect these two gifts, even if you connect the two in your mind.

If it's a loan then you have to pay a certain minimum rate of interest specified in the IRS regulations and have written terms for a payback schedule.

If it is a gift then you have no legal obligation to pay it back. The parents have to specify in writing that it is a gift. They have to file a gift tax return when required by IRS regulations since it exceeds the current limit of 4X15=$60,000. If they give $60,000 then they have to specify the 4 15K gifts in writing to and from specific individuals to avoid filing the return.

Your parents can gift you 60K and only put the other 70K on the tax return. But this is only important if they think they will exceed the gift/inheritance limit that is more than 10 million.
Last edited by tadamsmar on Wed Nov 28, 2018 3:57 pm, edited 1 time in total.

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NavyIC3
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Re: Gift tax question

Post by NavyIC3 » Wed Nov 28, 2018 10:46 am

How does the IRS even know that a loan or gift took place? Who notifies them?

corysold
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Re: Gift tax question

Post by corysold » Wed Nov 28, 2018 10:58 am

Can you make do with $120,000 and do $60,000 now and the other $60,000 on Jan. 1st? That would eliminate all of the paperwork.

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Re: Gift tax question

Post by Spirit Rider » Wed Nov 28, 2018 11:09 am

NavyIC3 wrote:
Wed Nov 28, 2018 10:46 am
How does the IRS even know that a loan or gift took place? Who notifies them?
Like many other things in the tax code, you are on your honor. You follow the law and either file a gift tax return or report the actual/imputed interest if it is a loan. You do this as it is the right thing to do and failure to do so if caught by audit is subject to penalties.

senex
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Re: Gift tax question

Post by senex » Wed Nov 28, 2018 11:22 am

NavyIC3 wrote:
Wed Nov 28, 2018 10:46 am
How does the IRS even know that a loan or gift took place? Who notifies them?
Banks are required to report many types of large transactions to the government. The govt does not necessarily investigate or pursue every instance, but when dealing with large sums, prudence dictates that you create written records and obey the law.

For the original poster's case, it sounds like he should:

1) Sign the bank paperwork before any transfers (so there is not even an appearance of impropriety)

2) Have your parents send the money and treat it as a loan. You can find the IRS minimum interest rate online. You can find a sample promissory note text online. Write a promissory note on a half a page of paper -- you don't have to make it complicated. Then sign it.

3) While the note is active, your parents must report the interest each year on their income tax. Report it on Schedule B as "Interest from personal loan." Note that you don't have to actually give them money -- they can add the interest to the loan balance.

4) You can pay back your parents whenever you want, or your parents can forgive 60k of the loan balance each year until the loan is discharged.

When structured this way, you get the lump sum up front without needing to file Form 990 (the gift tax form).

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tadamsmar
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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 11:47 am

NavyIC3 wrote:
Wed Nov 28, 2018 10:46 am
How does the IRS even know that a loan or gift took place? Who notifies them?
Banks are required to report all money transfers exceeding $10,000 to the IRS. This includes transfers that add up the limit over a period of time.

It's a good idea to be able to show that all your large transfers conformed to laws and regulations. Hence the need for paperwork documenting the fact that large loans and gifts conform to the regulations. I think the paperwork "contracts" can be informal as long as they cover the regulations.

https://www.encyclopedia.com/articles/w ... rt-to-irs/

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tadamsmar
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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 12:03 pm

senex wrote:
Wed Nov 28, 2018 11:22 am
NavyIC3 wrote:
Wed Nov 28, 2018 10:46 am
How does the IRS even know that a loan or gift took place? Who notifies them?
4) You can pay back your parents whenever you want, or your parents can forgive 60k of the loan balance each year until the loan is discharged.

When structured this way, you get the lump sum up front without needing to file Form 990 (the gift tax form).
I think a loan has to have written terms specifying the term of the loan. But I think it's true that the loan can be structured so that the terms involve less than $60,000 per year in interest and principal repayment so that the parents can gift the payments each year.

The whole process for $130,000 would require 10-11 documents. 1 document for the loan of $70,000, 4 documents for 4 $15,000 gifts the first year, 4 gift documents during the second year for principal and interest <= $60,000. At least one document for the gifting remaining principal and interest the next year.

The documents can be informal, I think. They have to cover what the regulations require.

Maybe this is overkill, but I think this is what is required for an IRS audit in the case where you don't file a 709 gift tax form. You could just assume no audit or just assume you could try to jawbone your way through it.

The gift tax form is 709 not 990.

Note that big transfers of money have to be reported by banks and are sometimes investigated. Dennis Hastert was caught paying hush money this way.

senex
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Re: Gift tax question

Post by senex » Wed Nov 28, 2018 2:13 pm

tadamsmar wrote:
Wed Nov 28, 2018 12:03 pm
I think a loan has to have written terms specifying the term of the loan. But I think it's true that the loan can be structured so that the terms involve less than $60,000 per year in interest and principal repayment so that the parents can gift the payments each year.
Yep. For the original poster I would write it as simple interest compounded annually on Dec 31 at the minimum IRS required rate, with no required payments except a balloon payment required at end of term (say, 5 years or something). Online examples should have the essential details, which he can modify to his liking.

I haven't heard of writing a separate document for each gift; I don't think that's required. I would simply keep one page in a notebook where I track the loan balance, adding interest each year and subtracting payments or gifts on the date they were made.

Thanks for the correction on Form 709 -- brain fart.

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tadamsmar
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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 3:09 pm

senex wrote:
Wed Nov 28, 2018 2:13 pm
tadamsmar wrote:
Wed Nov 28, 2018 12:03 pm
I think a loan has to have written terms specifying the term of the loan. But I think it's true that the loan can be structured so that the terms involve less than $60,000 per year in interest and principal repayment so that the parents can gift the payments each year.
Yep. For the original poster I would write it as simple interest compounded annually on Dec 31 at the minimum IRS required rate, with no required payments except a balloon payment required at end of term (say, 5 years or something). Online examples should have the essential details, which he can modify to his liking.

I haven't heard of writing a separate document for each gift; I don't think that's required. I would simply keep one page in a notebook where I track the loan balance, adding interest each year and subtracting payments or gifts on the date they were made.

Thanks for the correction on Form 709 -- brain fart.
Opps! I think you are right that you don't need to document the gifts in writing if you keep them below $15,000 per year. But you perhaps need to transfer the money (or write the checks) in a way that makes it clear that it's not more than the limit from individual to individual. Writing a $60,000 check from an individual (non-joint) account might be a bad idea.

(But you may have to document it as a gift to the mortgage company, a loan may prevent qualification for the mortgage.)

I don't understand the one balloon payment idea. I think that would exceed $60,000 in one year if the payment was gifted back.

You could give $60,000 as an immediate gift, $55,000 as a loan payable next year and $15,000 as a loan payable the year after next year. Then gift the loans when they needed to be paid. I am assuming that the interest on the $55,000 loan would not exceed $5000.
Last edited by tadamsmar on Wed Nov 28, 2018 3:41 pm, edited 1 time in total.

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tadamsmar
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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 3:15 pm

senex wrote:
Wed Nov 28, 2018 11:22 am
NavyIC3 wrote:
Wed Nov 28, 2018 10:46 am
How does the IRS even know that a loan or gift took place? Who notifies them?
Banks are required to report many types of large transactions to the government. The govt does not necessarily investigate or pursue every instance, but when dealing with large sums, prudence dictates that you create written records and obey the law.

For the original poster's case, it sounds like he should:

1) Sign the bank paperwork before any transfers (so there is not even an appearance of impropriety)

2) Have your parents send the money and treat it as a loan. You can find the IRS minimum interest rate online. You can find a sample promissory note text online. Write a promissory note on a half a page of paper -- you don't have to make it complicated. Then sign it.

3) While the note is active, your parents must report the interest each year on their income tax. Report it on Schedule B as "Interest from personal loan." Note that you don't have to actually give them money -- they can add the interest to the loan balance.

4) You can pay back your parents whenever you want, or your parents can forgive 60k of the loan balance each year until the loan is discharged.

When structured this way, you get the lump sum up front without needing to file Form 990 (the gift tax form).
This does not work for getting a gift to buy a home. Assuming they won't qualify for the mortgage unless it is a gift.

It's bank fraud to represent a loan as a gift.

You need to represent it as a gift to the mortgage company. And you will be representing it as a loan to the IRS.

It really is a loan so you are committing a federal crime.

senex
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Re: Gift tax question

Post by senex » Wed Nov 28, 2018 3:27 pm

tadamsmar wrote:
Wed Nov 28, 2018 3:09 pm
I don't understand the one balloon payment idea. I think that would exceed $60,000 in one year if the payment was gifted back.
Maybe an example would help. Take the original $130k request. Here's one way to do it:

Promissory note: borrow $130k for 5 year term. Interest rate 3.07% (*) compounded annually on Dec 31. No regular payments required. Balloon payment of entire balance due on 11/28/2023. Sign it, xfer the money.

Notebook entries:
(sorry about the formatting... I can't figure out how to make it line up vertically)
date -- description -- amount -- balance
11/28/18 -- Loan origination -- 130,000 -- 130,000
12/1/18 -- Loan forgiveness gift -- (60,000) -- 70,000
12/31/18 -- Interest charged -- 2,149 -- 72,149 ## parents include $2149 on 2018 taxes as interest rcvd from personal loan
1/1/19 -- Loan forgiveness gift -- (60,000) -- 12,149
12/31/19 -- Interest charged -- 373 -- 12,522 ## parents include $373 on 2019 taxes as interest rcvd from personal loan
1/1/20 -- Loan forgiveness gift -- (12,522) -- 0 ## loan is now fully repaid.

Note that you could give your parents the 60k each year (instead of them forgiving 60k worth of the balance) and you would have the same notebook, just different descriptions. If you wanted to pay them back as if it were a zero interest loan, then break the final line into two items: you give them 10k (thus you have repaid them 130k total) and have them gift you loan forgiveness of 2,522. Accounting-wise, you can pay back any amount you want on any schedule you want, with them gifting you the loan forgiveness to make up any difference. You can repay any amount each year with no gift tax implications (because you are paying back a loan). Their gifts (loan/interest forgiveness) must be 60k or less each year if you want to avoid gift tax filing.

(*) current IRS minimum rate for 5year loan is 3.07% : from https://apps.irs.gov/app/picklist/list/ ... Rates.html
Last edited by senex on Wed Nov 28, 2018 3:49 pm, edited 2 times in total.

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Re: Gift tax question

Post by senex » Wed Nov 28, 2018 3:28 pm

tadamsmar wrote:
Wed Nov 28, 2018 3:15 pm
It really is a loan so you are committing a federal crime.
Read the full thread. He doesn't need and isn't using the loan to satisfy a bank requirement. The loan is for other reasons. Thus my step 1.

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Re: Gift tax question

Post by RickBoglehead » Wed Nov 28, 2018 3:33 pm

senex wrote:
Wed Nov 28, 2018 11:22 am
NavyIC3 wrote:
Wed Nov 28, 2018 10:46 am
How does the IRS even know that a loan or gift took place? Who notifies them?
Banks are required to report many types of large transactions to the government. The govt does not necessarily investigate or pursue every instance, but when dealing with large sums, prudence dictates that you create written records and obey the law.

For the original poster's case, it sounds like he should:

1) Sign the bank paperwork before any transfers (so there is not even an appearance of impropriety)

2) Have your parents send the money and treat it as a loan. You can find the IRS minimum interest rate online. You can find a sample promissory note text online. Write a promissory note on a half a page of paper -- you don't have to make it complicated. Then sign it.

3) While the note is active, your parents must report the interest each year on their income tax. Report it on Schedule B as "Interest from personal loan." Note that you don't have to actually give them money -- they can add the interest to the loan balance.

4) You can pay back your parents whenever you want, or your parents can forgive 60k of the loan balance each year until the loan is discharged.

When structured this way, you get the lump sum up front without needing to file Form 990 (the gift tax form).
This ^^^

We did exactly this, paid them back 90 days later when we sold our prior house.

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willthrill81
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Re: Gift tax question

Post by willthrill81 » Wed Nov 28, 2018 3:36 pm

RickBoglehead wrote:
Wed Nov 28, 2018 3:33 pm
senex wrote:
Wed Nov 28, 2018 11:22 am
NavyIC3 wrote:
Wed Nov 28, 2018 10:46 am
How does the IRS even know that a loan or gift took place? Who notifies them?
Banks are required to report many types of large transactions to the government. The govt does not necessarily investigate or pursue every instance, but when dealing with large sums, prudence dictates that you create written records and obey the law.

For the original poster's case, it sounds like he should:

1) Sign the bank paperwork before any transfers (so there is not even an appearance of impropriety)

2) Have your parents send the money and treat it as a loan. You can find the IRS minimum interest rate online. You can find a sample promissory note text online. Write a promissory note on a half a page of paper -- you don't have to make it complicated. Then sign it.

3) While the note is active, your parents must report the interest each year on their income tax. Report it on Schedule B as "Interest from personal loan." Note that you don't have to actually give them money -- they can add the interest to the loan balance.

4) You can pay back your parents whenever you want, or your parents can forgive 60k of the loan balance each year until the loan is discharged.

When structured this way, you get the lump sum up front without needing to file Form 990 (the gift tax form).
This ^^^

We did exactly this, paid them back 90 days later when we sold our prior house.
That looks perfectly kosher to me.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Gift tax question

Post by Spirit Rider » Wed Nov 28, 2018 3:51 pm

I have been thinking of this as an either or situation. When it has been pointed out this can be both.

A $60K gift that does not even have to be reported unless it is made from an individual account in a non-community property state. Even if a Form 709 is required to report gift splitting it still does not apply against the lifetime exclusion.

The remaining $70K can be a loan. In the unlikely event that the OP has <= $1K in net investment income/year during the term of the loan, no interest is required. Otherwise, there needs to be actual interest charged or imputed interest. The 12/2018 short-term (< 3 years) monthly AFR is 2.72%.

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tadamsmar
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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 3:51 pm

senex wrote:
Wed Nov 28, 2018 3:28 pm
tadamsmar wrote:
Wed Nov 28, 2018 3:15 pm
It really is a loan so you are committing a federal crime.
Read the full thread. He doesn't need and isn't using the loan to satisfy a bank requirement. The loan is for other reasons. Thus my step 1.
You are right, the first post indicates that he could have used a HELOC so it's OK to substitute a personal loan.

But there is another issue. If $130,000 suddenly appears in the OP's bank account, then the mortgage company will want to know in writing where that came from. If the OP says it's a gift but tells the IRS it is a loan, then that is perhaps a problem. But, probably not something that would get you prosecuted, if the mortgage company does not require it to be a gift.

But if he tells the mortgage company it's a loan then no problem.

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Re: Gift tax question

Post by Spirit Rider » Wed Nov 28, 2018 3:54 pm

tadamsmar wrote:
Wed Nov 28, 2018 3:51 pm
But there is another issue. If $130,000 suddenly appears in the OP's bank account, then the mortgage company will want to know in writing where that came from.
Only if the funds are needed for the down payment, which the OP stated is not the case.

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Re: Gift tax question

Post by JGoneRiding » Wed Nov 28, 2018 4:02 pm

They could gift 60 now and Jan 1 then it's only 10k that has to go on the form. Just a thought

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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 4:04 pm

senex wrote:
Wed Nov 28, 2018 11:22 am

1) Sign the bank paperwork before any transfers (so there is not even an appearance of impropriety)
Probably not necessary in the OP's case. If the bank asked about the $130,000 you can just tell them it's a personal bridge loan. The OP qualifies without that loan anyway.

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Re: Gift tax question

Post by senex » Wed Nov 28, 2018 4:13 pm

tadamsmar wrote:
Wed Nov 28, 2018 3:51 pm
But there is another issue. If $130,000 suddenly appears in the OP's bank account, then the mortgage company will want to know in writing where that came from.
I don't know where you do your banking, but I have never heard of such a thing. Many mortgages, once funded, are immediately resold to a servicer, and I have never heard about a servicer caring about anything except regular payments (my servicers in the past didn't know what assets I owned).

If you've seen a mortgage agreement that allows the lender to demand written explanations for actions you take in the future (after the mortgage is issued) that are not senior to the bank's lien, would you upload an example document? I suspect that does not happen, but if it does, I would like to see how it is structured.
Last edited by senex on Wed Nov 28, 2018 4:22 pm, edited 1 time in total.

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tadamsmar
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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 4:14 pm

Spirit Rider wrote:
Wed Nov 28, 2018 3:54 pm
tadamsmar wrote:
Wed Nov 28, 2018 3:51 pm
But there is another issue. If $130,000 suddenly appears in the OP's bank account, then the mortgage company will want to know in writing where that came from.
Only if the funds are needed for the down payment, which the OP stated is not the case.
Not sure. I think they try to understand how you make a living. They might require an explanation in writing.

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Re: Gift tax question

Post by J G Bankerton » Wed Nov 28, 2018 4:17 pm

Spirit Rider wrote:
Tue Nov 27, 2018 11:44 pm
Since this was certified as a gift, you will have to gift it back, but gifts are not supposed to come with strings attached. So I'm not entirely sure.
I just did the exact same thing for my son. I found it odd that it was called a gift that MUST be used to buy a specific property. It's a government thing.

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tadamsmar
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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 4:19 pm

senex wrote:
Wed Nov 28, 2018 4:13 pm
tadamsmar wrote:
Wed Nov 28, 2018 3:51 pm
But there is another issue. If $130,000 suddenly appears in the OP's bank account, then the mortgage company will want to know in writing where that came from.
I don't know where you do your banking, but I have never heard of such a thing. Many mortgages, once funded, are immediately resold to a servicer, and I have never heard about a servicer caring about anything except regular payments (my servicers in the past didn't know what assets I owned).

If you've seen a mortgage agreement that allows the lender to demand written explanations for actions you take in the future (after the mortgage is issued) that have no impact on the primary lien, would you upload an example document? I suspect that does not happen, but if it does, I would like to see how it is structured.
I was assuming it would be deposited earlier. I see that you assumed it would be deposited later.

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Re: Gift tax question

Post by J G Bankerton » Wed Nov 28, 2018 4:21 pm

J G Bankerton wrote:
Wed Nov 28, 2018 4:17 pm
Spirit Rider wrote:
Tue Nov 27, 2018 11:44 pm
Since this was certified as a gift, you will have to gift it back, but gifts are not supposed to come with strings attached. So I'm not entirely sure.
I just did the exact same thing for my son. I found it odd that it was called a gift that MUST be used to buy a specific property. It's a government thing.
tadamsmar wrote:
Wed Nov 28, 2018 11:47 am
Banks are required to report all money transfers exceeding $10,000 to the IRS.
That's cash not checks or electric transfers. There is already a record of every check and other transfer.

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Re: Gift tax question

Post by MarkNYC » Wed Nov 28, 2018 4:23 pm

tadamsmar wrote:
Wed Nov 28, 2018 9:16 am
Your parents can gift you 60K and only put the other 70K on the tax return.
If a gift is made to an individual in an amount in excess of the annual exclusion, then the full amount of the gift must be reported on the gift tax return, with the allowable annual exclusion amount backed-out on page 3 of the tax return. You cannot just list on the tax return the "net" amount of the gift that exceeds the exclusion amount.

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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 4:34 pm

MarkNYC wrote:
Wed Nov 28, 2018 4:23 pm
tadamsmar wrote:
Wed Nov 28, 2018 9:16 am
Your parents can gift you 60K and only put the other 70K on the tax return.
If a gift is made to an individual in an amount in excess of the annual exclusion, then the full amount of the gift must be reported on the gift tax return, with the allowable annual exclusion amount backed-out on page 3 of the tax return. You cannot just list on the tax return the "net" amount of the gift that exceeds the exclusion amount.
Looks like you are right. You get the exclusion but you have to file the full amount.

Looks like you are supposed to file a 709 even for gifts under $15,000 per year. Who does that?

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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 4:38 pm

J G Bankerton wrote:
Wed Nov 28, 2018 4:21 pm
J G Bankerton wrote:
Wed Nov 28, 2018 4:17 pm
Spirit Rider wrote:
Tue Nov 27, 2018 11:44 pm
Since this was certified as a gift, you will have to gift it back, but gifts are not supposed to come with strings attached. So I'm not entirely sure.
I just did the exact same thing for my son. I found it odd that it was called a gift that MUST be used to buy a specific property. It's a government thing.
tadamsmar wrote:
Wed Nov 28, 2018 11:47 am
Banks are required to report all money transfers exceeding $10,000 to the IRS.
That's cash not checks or electric transfers. There is already a record of every check and other transfer.
"If you make a cash or check deposit of $10,000.00 or more in one transaction, then the bank must make you fill out and file IRS form 8300."

https://www.encyclopedia.com/articles/w ... rt-to-irs/

J G Bankerton
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Re: Gift tax question

Post by J G Bankerton » Wed Nov 28, 2018 4:49 pm

tadamsmar wrote:
Wed Nov 28, 2018 4:38 pm

"If you make a cash or check deposit of $10,000.00 or more in one transaction, then the bank must make you fill out and file IRS form 8300."

https://www.encyclopedia.com/articles/w ... rt-to-irs/
The IRS says only CASH deposits.
https://www.irs.gov/businesses/small-bu ... over-10000
With a check the IRS knows where the money came from. I do checks over $10,000 on occasion and never filled out the form. Now when I tried to take out over $10,000 in cash one time they strongly discouraged it because of the reporting requirements.

What I find odd is way more that $10,000 in cash flies around casinos all the time with no questions asked.

MarkNYC
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Re: Gift tax question

Post by MarkNYC » Wed Nov 28, 2018 5:17 pm

tadamsmar wrote:
Wed Nov 28, 2018 4:34 pm
Looks like you are supposed to file a 709 even for gifts under $15,000 per year. Who does that?
If you did not give more than $15,000 to any one individual then you are not required to file.

J G Bankerton
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Re: Gift tax question

Post by J G Bankerton » Wed Nov 28, 2018 5:23 pm

MarkNYC wrote:
Wed Nov 28, 2018 5:17 pm
tadamsmar wrote:
Wed Nov 28, 2018 4:34 pm
Looks like you are supposed to file a 709 even for gifts under $15,000 per year. Who does that?
If you did not give more than $15,000 to any one individual then you are not required to file.
This gift tax doesn't seem to be enforced by the IRS. The former owner of the Los Angeles Clippers gave his GF over $1,000,000 that wasn't reported. I'm sure many girlfriends get gifts way over the limit all of the time.

Gill
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Re: Gift tax question

Post by Gill » Wed Nov 28, 2018 5:35 pm

J G Bankerton wrote:
Wed Nov 28, 2018 5:23 pm
MarkNYC wrote:
Wed Nov 28, 2018 5:17 pm
tadamsmar wrote:
Wed Nov 28, 2018 4:34 pm
Looks like you are supposed to file a 709 even for gifts under $15,000 per year. Who does that?
If you did not give more than $15,000 to any one individual then you are not required to file.
This gift tax doesn't seem to be enforced by the IRS. The former owner of the Los Angeles Clippers gave his GF over $1,000,000 that wasn't reported. I'm sure many girlfriends get gifts way over the limit all of the time.
No different than taxpayers not reporting income. You are required to report gifts exceeding the annual exclusion, currently $15,000, but that does not mean everyone does.
Gill

J G Bankerton
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Re: Gift tax question

Post by J G Bankerton » Wed Nov 28, 2018 5:48 pm

Gill wrote:
Wed Nov 28, 2018 5:35 pm

No different than taxpayers not reporting income. You are required to report gifts exceeding the annual exclusion, currently $15,000, but that does not mean everyone does.
Gill
I can see it now, a women gives her boyfriend a Corvette for Valentine's day and then hands her husband a form 709 to fill out.
What one has to be careful of is making a "gift" and having to sign a form with all amounts spelled out swearing it is a "gift". I did that but the form doesn't make sense as it places conditions on the "gift" so the whole thing is void. That's what I'm going to tell the judge anyway.

defscott627
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Re: Gift tax question

Post by defscott627 » Wed Nov 28, 2018 8:38 pm

Hi - sorry I was working all day and couldn't respond.

I spoke to my mortgage loan officer at the bank I am doing the mortgage at to discuss the options.

Here is what the loan officer said to do (and we have gotten the approval from our parents as well).

Let me know what you think.

Parents gift us $60k before January 1.
Parents gift us $60k after January 1.
No forms filled out because it is perfectly legal to gift that amount without any forms.

We don't need $130k so $120k would be fine to show the board for the 24 months (so we don't need a $10k loan on top of this).

The loan officer said since they are not gifting the down payment, that we can deposit it in a bank account at a different bank and never even show the bank those cash assets, as long as we are good elsewhere (down payment, income, etc.). Only the board has to see those bank statements when we do our board application.

Then, in 2019, we gift $60k back to our parents (after the sale of our current property). In 2020, we gift the other $60k.

Does this seem good? No gift affidavits would have to be signed because the bank would not be looking at the deposits at all. No gift tax forms would have to be signed.

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tadamsmar
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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 8:41 pm

Spirit Rider wrote:
Wed Nov 28, 2018 3:51 pm
The remaining $70K can be a loan. In the unlikely event that the OP has <= $1K in net investment income/year during the term of the loan, no interest is required. Otherwise, there needs to be actual interest charged or imputed interest. The 12/2018 short-term (< 3 years) monthly AFR is 2.72%.
Looks like interest is required on a $70K loan. I don't see any exclusion based on net investment income. Can you cite a source?

Gill
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Re: Gift tax question

Post by Gill » Wed Nov 28, 2018 8:51 pm

OP, I haven’t followed every post on this thread, but your most recent thread describing a plan for reciprocal gifts are not gifts at all but is a loan, plain and simple with all the ramifications of disclosure to a mortgage lender as well as imputed interest to the so called “donor” of the “gift”.
Gill

defscott627
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Re: Gift tax question

Post by defscott627 » Wed Nov 28, 2018 8:53 pm

But why does the mortgage lender need disclosure? I can get the mortgage without the money. If it were a house this would be no issue.

This money is for the coop board.

According to the mortgage loan officer at the bank - he said to deposit the money in a bank account that I will not be providing statements for and no questions would be asked.

Gill
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Re: Gift tax question

Post by Gill » Wed Nov 28, 2018 8:56 pm

defscott627 wrote:
Wed Nov 28, 2018 8:53 pm
But why does the mortgage lender need disclosure? I can get the mortgage without the money. If it were a house this would be no issue.

This money is for the coop board.

According to the mortgage loan officer at the bank - he said to deposit the money in a bank account that I will not be providing statements for and no questions would be asked.
Because you have a loan you are not disclosing to the mortgage lender which could affect its evaluation of your credit worthiness. This is mortgage fraud.
Gill

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tadamsmar
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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 8:58 pm

Gill wrote:
Wed Nov 28, 2018 8:51 pm
OP, I haven’t followed every post on this thread, but your most recent thread describing a plan for reciprocal gifts are not gifts at all but is a loan, plain and simple with all the ramifications of disclosure to a mortgage lender as well as imputed interest to the so called “donor” of the “gift”.
Gill
Two different gifts are just two different gifts. They do not constitute a loan.

If your dad decides to give you $15,000 with no strings attached, that's a gift. If you decide to give your dad $15,000 with no strings attached, that's a gift. End of story.

If you and dad sign a loan contract about this arrangement being reciprocal and binding, then that would be a loan.
Last edited by tadamsmar on Wed Nov 28, 2018 9:07 pm, edited 2 times in total.

defscott627
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Re: Gift tax question

Post by defscott627 » Wed Nov 28, 2018 8:59 pm

Gill wrote:
Wed Nov 28, 2018 8:56 pm
defscott627 wrote:
Wed Nov 28, 2018 8:53 pm
But why does the mortgage lender need disclosure? I can get the mortgage without the money. If it were a house this would be no issue.

This money is for the coop board.

According to the mortgage loan officer at the bank - he said to deposit the money in a bank account that I will not be providing statements for and no questions would be asked.
Because you have a loan you are not disclosing to the mortgage lender which could affect its evaluation of your credit worthiness. This is mortgage fraud.
Gill
Then hypothetically (again I am not trying to commit any fraud - that is the whole reason I started this thread - lol) - wouldn't anyone who gifts money to someone no longer be able to receive a gift back from that person? Where does the line get drawn in the legal sand?

I have another hypothetical (honestly not trying to be difficult - trying to understand the legal logic). What if I passed the mortgage application already and the gift ("loan") was given to me after underwriting? I have bought properties before and have never been asked to provide updated bank statements after underwriting? How would this new "loan" have any effect on a loan already approved?
x
Last edited by defscott627 on Wed Nov 28, 2018 9:04 pm, edited 2 times in total.

Gill
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Re: Gift tax question

Post by Gill » Wed Nov 28, 2018 9:02 pm

defscott627 wrote:
Wed Nov 28, 2018 8:59 pm
Gill wrote:
Wed Nov 28, 2018 8:56 pm
defscott627 wrote:
Wed Nov 28, 2018 8:53 pm
But why does the mortgage lender need disclosure? I can get the mortgage without the money. If it were a house this would be no issue.

This money is for the coop board.

According to the mortgage loan officer at the bank - he said to deposit the money in a bank account that I will not be providing statements for and no questions would be asked.
Because you have a loan you are not disclosing to the mortgage lender which could affect its evaluation of your credit worthiness. This is mortgage fraud.
Gill
Then hypothetically (again I am not trying to commit any fraud - that is the whole reason I started this thread - lol) - wouldn't anyone who gifts money to someone no longer be able to receive a gift back from that person? Where does the line get drawn in the legal sand?
The point is, they are not giving you the money. They are lending it with at least an implied understanding it will be repaid.

You added a second question after I replied. That is a question for the mortgage lender, and beyond my area of expertise.
Gill
Last edited by Gill on Wed Nov 28, 2018 9:06 pm, edited 1 time in total.

defscott627
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Re: Gift tax question

Post by defscott627 » Wed Nov 28, 2018 9:06 pm

Gill wrote:
Wed Nov 28, 2018 9:02 pm
defscott627 wrote:
Wed Nov 28, 2018 8:59 pm
Gill wrote:
Wed Nov 28, 2018 8:56 pm
defscott627 wrote:
Wed Nov 28, 2018 8:53 pm
But why does the mortgage lender need disclosure? I can get the mortgage without the money. If it were a house this would be no issue.

This money is for the coop board.

According to the mortgage loan officer at the bank - he said to deposit the money in a bank account that I will not be providing statements for and no questions would be asked.
Because you have a loan you are not disclosing to the mortgage lender which could affect its evaluation of your credit worthiness. This is mortgage fraud.
Gill
Then hypothetically (again I am not trying to commit any fraud - that is the whole reason I started this thread - lol) - wouldn't anyone who gifts money to someone no longer be able to receive a gift back from that person? Where does the line get drawn in the legal sand?
The point is, they are not giving you the money. They are lending it with at least an implied understanding it will be repaid.
Gill
Last hypothetical - who's to say when I sell my current property and make $200k in equity, I don't 'feel bad' for the gift my parents gave me and I end up gifting $60k back?


What if my parents had an economic hardship next year and I want to gift the money back?

I just don't see how anyone would be able to prove intent. Again, I am not saying I am going to do this - I am simply saying, how could those be the regulations? How would there be any proof that these were loans?

Gill
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Location: Florida

Re: Gift tax question

Post by Gill » Wed Nov 28, 2018 9:09 pm

defscott627 wrote:
Wed Nov 28, 2018 9:06 pm
Gill wrote:
Wed Nov 28, 2018 9:02 pm
defscott627 wrote:
Wed Nov 28, 2018 8:59 pm
Gill wrote:
Wed Nov 28, 2018 8:56 pm
defscott627 wrote:
Wed Nov 28, 2018 8:53 pm
But why does the mortgage lender need disclosure? I can get the mortgage without the money. If it were a house this would be no issue.

This money is for the coop board.

According to the mortgage loan officer at the bank - he said to deposit the money in a bank account that I will not be providing statements for and no questions would be asked.
Because you have a loan you are not disclosing to the mortgage lender which could affect its evaluation of your credit worthiness. This is mortgage fraud.
Gill
Then hypothetically (again I am not trying to commit any fraud - that is the whole reason I started this thread - lol) - wouldn't anyone who gifts money to someone no longer be able to receive a gift back from that person? Where does the line get drawn in the legal sand?
The point is, they are not giving you the money. They are lending it with at least an implied understanding it will be repaid.
Gill
Last hypothetical - who's to say when I sell my current property and make $200k in equity, I don't 'feel bad' for the gift my parents gave me and I end up gifting $60k back?


What if my parents had an economic hardship next year and I want to gift the money back?

I just don't see how anyone would be able to prove intent. Again, I am not saying I am going to do this - I am simply saying, how could those be the regulations? How would there be any proof that these were loans?
It’s all a matter of proof and the surrounding facts to prove intent.
Gill

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tadamsmar
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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 9:14 pm

defscott627 wrote:
Wed Nov 28, 2018 8:59 pm
Gill wrote:
Wed Nov 28, 2018 8:56 pm
defscott627 wrote:
Wed Nov 28, 2018 8:53 pm
But why does the mortgage lender need disclosure? I can get the mortgage without the money. If it were a house this would be no issue.

This money is for the coop board.

According to the mortgage loan officer at the bank - he said to deposit the money in a bank account that I will not be providing statements for and no questions would be asked.
Because you have a loan you are not disclosing to the mortgage lender which could affect its evaluation of your credit worthiness. This is mortgage fraud.
Gill
Then hypothetically (again I am not trying to commit any fraud - that is the whole reason I started this thread - lol) - wouldn't anyone who gifts money to someone no longer be able to receive a gift back from that person? Where does the line get drawn in the legal sand?
It's OK to give gifts back and forth like that. Those are really gifts. You are not obligated to gift back the gift. It's a gift because your parents cannot go to court and whip out loan contract that you signed and force you to pay it back.

It's the reporting requirements to the bank and the board that don't make sense. If they don't care if the money is a loan or a gift, then why do you have to hide it from the bank and show it to the board?

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tadamsmar
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Re: Gift tax question

Post by tadamsmar » Wed Nov 28, 2018 9:37 pm

Gill wrote:
Wed Nov 28, 2018 9:09 pm
defscott627 wrote:
Wed Nov 28, 2018 9:06 pm
Gill wrote:
Wed Nov 28, 2018 9:02 pm
defscott627 wrote:
Wed Nov 28, 2018 8:59 pm
Gill wrote:
Wed Nov 28, 2018 8:56 pm


Because you have a loan you are not disclosing to the mortgage lender which could affect its evaluation of your credit worthiness. This is mortgage fraud.
Gill
Then hypothetically (again I am not trying to commit any fraud - that is the whole reason I started this thread - lol) - wouldn't anyone who gifts money to someone no longer be able to receive a gift back from that person? Where does the line get drawn in the legal sand?
The point is, they are not giving you the money. They are lending it with at least an implied understanding it will be repaid.
Gill
Last hypothetical - who's to say when I sell my current property and make $200k in equity, I don't 'feel bad' for the gift my parents gave me and I end up gifting $60k back?


What if my parents had an economic hardship next year and I want to gift the money back?

I just don't see how anyone would be able to prove intent. Again, I am not saying I am going to do this - I am simply saying, how could those be the regulations? How would there be any proof that these were loans?
It’s all a matter of proof and the surrounding facts to prove intent.
Gill
Intent does not matter. There is no loan contract, therefore it's not a loan.

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