Tax implications & large cash gift for down payment?

[rage_phish]

My father in law has offered a very generous gift of $600k to allow us to buy a home in the school district we desire (he wants to see us enjoying some of our inheritance while he’s alive and this combined with equity from our current home will allow us to be able to afford a very similar monthly payment to what we currently have)

Is there anything to be aware of with this situation? Tax implications? Funding issues?

[123]

This is a strong indication that he wants to retain control over your household and encourage dependency on him. This is a fatal strike at your future sense of independence and self-achievement.

"Free money" generally costs you the most. Money received as an inheritance comes without strings.

[rage_phish]

I disagree

He has been insanely generous with us the entire time I have known him. And it has never been an issue

He is just well off and enjoys sharing that with his daughters and their families

[blahblahsunshine]

It might be worth reviewing the laws around parental gifting. I believe so long as the gift is recorded it can go against your lifetime cap and also reduce the impact of the settled estate down the road. I would also be concerned about what the implication on you is based on the gift...but if there is no legal onus then what the heck.

[DosCommas]

If he is willing to gift you the money so that it is in your bank account for more than 2 statements prior to applying for the mortgage it will save you some explaining. If not, you will need a letter for the underwriter from him explaining it is a gift and there is no expectation for you to pay it back.

He will have to file a gift return with his taxes which will identify the amount of the gift and reduce the estate tax exemption by that amount (usually not a big deal as the estate tax only applies to large estates at the moment, but laws do change). Gifts are not reported as income to you so would not affect your taxes.

[123]

...He is just well off and enjoys sharing that with his daughters and their families

Sometimes fathers are concerned/jealous about losing their position about being "first" with their daughters and will do anything to maintain their position.

[rage_phish]

If he is willing to gift you the money so that it is in your bank account for more than 2 statements prior to applying for the mortgage it will save you some explaining. If not, you will need a letter for the underwriter from him explaining it is a gift and there is no expectation for you to pay it back.

He will have to file a gift return with his taxes which will identify the amount of the gift and reduce the estate tax exemption by that amount (usually not a big deal as the estate tax only applies to large estates at the moment, but laws do change).

Thanks. When we bought our current house he gave my wife money for her half of the down payment and provided the same letter if I remember correctly

[KlangFool]

My father in law has offered a very generous gift of $600k to allow us to buy a home in the school district we desire (he wants to see us enjoying some of our inheritance while he’s alive and this combined with equity from our current home will allow us to be able to afford a very similar monthly payment to what we currently have)

Is there anything to be aware of with this situation? Tax implications? Funding issues?

rage_phish,

Just say no. Do you enjoy living in a neighborhood that you get to feel very poor every day? Ditto for your spouse and your kids. Your neighbors are probably making multiple times your household income.

KlangFool

[rage_phish]

My father in law has offered a very generous gift of $600k to allow us to buy a home in the school district we desire (he wants to see us enjoying some of our inheritance while he’s alive and this combined with equity from our current home will allow us to be able to afford a very similar monthly payment to what we currently have)

Is there anything to be aware of with this situation? Tax implications? Funding issues?

rage_phish,

Just say no. Do you enjoy living in a neighborhood that you get to feel very poor every day? Ditto for your spouse and your kids. Your neighbors are probably making multiple times your household income.

KlangFool

It’s the town I grew up in. Literally the dream place id live if I won the lottery. Not too worried about being poorer than other people around me

[rage_phish]

...He is just well off and enjoys sharing that with his daughters and their families

Sometimes fathers are concerned/jealous about losing their position about being "first" with their daughters and will do anything to maintain their position.

I’m sure you’re right about some fathers

[KlangFool]

My father in law has offered a very generous gift of $600k to allow us to buy a home in the school district we desire (he wants to see us enjoying some of our inheritance while he’s alive and this combined with equity from our current home will allow us to be able to afford a very similar monthly payment to what we currently have)

Is there anything to be aware of with this situation? Tax implications? Funding issues?

rage_phish,

Just say no. Do you enjoy living in a neighborhood that you get to feel very poor every day? Ditto for your spouse and your kids. Your neighbors are probably making multiple times your household income.

KlangFool

It’s the town I grew up in. Literally the dream place id live if I won the lottery. Not too worried about being poorer than other people around me

rage_phish,

1) But, you did not win the lottery. And, you have no access to that money, it is in the house.

<<Not too worried about being poorer than other people around me>>

2) How about your spouse and your kids?

KlangFool

[rage_phish]

1. True. I Missread. I thought you simply asked if I enjoy the potential town

2. My wife has no qualms about it either (also the town she grew up in and loves it). As far as the kids go, that is already there reality. Some of our friends are far far wealthier including their cousins. Some make significantly less than us. We currently live one town over than the new town

[Perkunas]

Your father would need to file Form 709 and you (or your wife) would have neither tax nor filing requirements. He would not owe tax but the gift would count against his lifetime exclusion.

[rage_phish]

Your father would need to file Form 709 and you (or your wife) would have neither tax nor filing requirements. He would not owe tax but the gift would count against his lifetime exclusion.

Thank you

[Lafder]

It sounds like you and your spouse have a great relationship with your FIL. The warnings to be careful may not apply to you. But it is worth considering in case they do.

My understanding is that your FIL would have to file a gift tax form and file it, not you or your spouse.

You should not owe any tax on this amount.

I agree with the comment on having the money in your account a few statement cycles if possible. I had to provide a paper trail of my deposit money even though it was coming from one of my accounts to another!

Of course look at expenses in this higher priced neighborhood and be sure it will not be a hardship, such as property taxes.

lafder

[prd1982]

I'm surprised by many of the comments in this thread. I believe most parents do want what's best for their kids and grandkids, with no strings attached. Helping the grandkids to grow up in a great school district gives them a real headstart in life. I do agree that you need to be sure you can handle the upkeep on the house, saving for college etc. As for comparisons to the neighbors, I'm betting a number of them have huge mortgages to live in a good school district.

[KlangFool]

I'm surprised by many of the comments in this thread. I believe most parents do want what's best for their kids and grandkids, with no strings attached. Helping the grandkids to grow up in a great school district gives them a real headstart in life. I do agree that you need to be sure you can handle the upkeep on the house, saving for college etc. As for comparisons to the neighbors, I'm betting a number of them have huge mortgages to live in a good school district.

prd1982,

The neighbors have the household income for the mortgage. OP's income can only support the mortgage after the 600K gift plus the home equity of the old house. OP is earning 1/3 to 1/4 of his neighbors. Would you enjoy living as the poorest neighbor in this kind of neighborhood?

KlangFool

[rage_phish]

Curious why that would matter?

[smitcat]

I'm surprised by many of the comments in this thread. I believe most parents do want what's best for their kids and grandkids, with no strings attached. Helping the grandkids to grow up in a great school district gives them a real headstart in life. I do agree that you need to be sure you can handle the upkeep on the house, saving for college etc. As for comparisons to the neighbors, I'm betting a number of them have huge mortgages to live in a good school district.

prd1982,

The neighbors have the household income for the mortgage. OP's income can only support the mortgage after the 600K gift plus the home equity of the old house. OP is earning 1/3 to 1/4 of his neighbors. Would you enjoy living as the poorest neighbor in this kind of neighborhood?

KlangFool

We have never had a problem living as one of the lower income folks in a neighborhood.

[KlangFool]

Curious why that would matter?

rage_phish,

1) How old are your kids?

2) Have you ever grown up in a neighborhood where everyone in your neighborhood is earning several times your household income? Aka, you are reminded of how poor your family is as compared to your neighbors every day.

KlangFool

P.S.: You are moving into a neighborhood with an income profile that is much higher than your income peers. Go and look around that neighborhood. Check out their cars and so on. Please make sure that you and your family can be comfortable in this neighborhood.

[oldfatguy]

Just say no.

+1 Adults should support themselves.

[KlangFool]

I'm surprised by many of the comments in this thread. I believe most parents do want what's best for their kids and grandkids, with no strings attached. Helping the grandkids to grow up in a great school district gives them a real headstart in life. I do agree that you need to be sure you can handle the upkeep on the house, saving for college etc. As for comparisons to the neighbors, I'm betting a number of them have huge mortgages to live in a good school district.

prd1982,

The neighbors have the household income for the mortgage. OP's income can only support the mortgage after the 600K gift plus the home equity of the old house. OP is earning 1/3 to 1/4 of his neighbors. Would you enjoy living as the poorest neighbor in this kind of neighborhood?

KlangFool

We have never had a problem living as one of the lower income folks in a neighborhood.

smitcat,

It goes both ways.

A) Just because it is not a problem for you, it may still be a problem for others.

B) Just because it is a problem for me, it may not be a problem for others.

KlangFool

[smitcat]

I'm surprised by many of the comments in this thread. I believe most parents do want what's best for their kids and grandkids, with no strings attached. Helping the grandkids to grow up in a great school district gives them a real headstart in life. I do agree that you need to be sure you can handle the upkeep on the house, saving for college etc. As for comparisons to the neighbors, I'm betting a number of them have huge mortgages to live in a good school district.

prd1982,

The neighbors have the household income for the mortgage. OP's income can only support the mortgage after the 600K gift plus the home equity of the old house. OP is earning 1/3 to 1/4 of his neighbors. Would you enjoy living as the poorest neighbor in this kind of neighborhood?

KlangFool

We have never had a problem living as one of the lower income folks in a neighborhood.

smitcat,

It goes both ways.

A) Just because it is not a problem for you, it may still be a problem for others.

B) Just because it is a problem for me, it may not be a problem for others.

KlangFool

"A) Just because it is not a problem for you, it may still be a problem for others."
I believe it was of good value to me - I have no idea why it would be a problem because it was not a problem for me.

"B) Just because it is a problem for me, it may not be a problem for others"
Perhaps explain why it was a problem instead of asking an open ended question like this...."Would you enjoy living as the poorest neighbor in this kind of neighborhood?"

[rage_phish]

Curious why that would matter?

rage_phish,

1) How old are your kids?

2) Have you ever grown up in a neighborhood where everyone in your neighborhood is earning several times your household income? Aka, you are reminded of how poor your family is as compared to your neighbors every day.

KlangFool

What reminders would you expect?


We do well enough. We own nice enough cars, dine out, take trips, afford a Gardner and house cleaner, save aggressively

What would you expect my kids to see? People with bmw’s and trips to aspen?

We’re more Honda and Lake Tahoe people no matter how rich

I admit I might be wildly underplaying it. But I just am not seeing the specific examples that would be an issue for my kids

[WarAdmiral]

My only comment would be regarding your new expensive home. did you calculate the annual taxes, heating/cooling bills. ? How much more will they be as compared to your current home?

Remember the gift is (probably) a one time thing. But the real estate taxes are going to be recurring expense for a very long time.

Real Estate is one of the few things that truly tax the wealthy appropriately.

[Gill]

I can't believe the negative comments on this thread. You are very fortunate. Graciously accept the money and enjoy the house. You asked about tax implications only. There are none for you and the donor is likely sophisticated enough that he knows he needs to file a gift tax return.
Gill

[prd1982]

+1 Adults should support themselves.

It is the comments like this that caught me by surprise. The forum is filled with folks looking at converting to Roths to reduce the taxes on the folks inheriting this money. And look at all the comments about elimination of the Stretch IRA. I don't remember seeing a single comment that said -- just give all the money to charity. Yet multiple people on this thread have said you should not accept it because you are an adult.

[Gnirk]

If you can afford the extra on-going costs, accept the gift and enjoy your life. I doubt if your FIL is trying to attach strings to it to control your life. I gifted the down payments to each of my daughters to purchase their condos. There were no strings attached, and never will be. I would much rather see them use some of their future inheritance now, than wait to leave it all to them until after I am dead.

[KlangFool]

Curious why that would matter?

rage_phish,

1) How old are your kids?

2) Have you ever grown up in a neighborhood where everyone in your neighborhood is earning several times your household income? Aka, you are reminded of how poor your family is as compared to your neighbors every day.

KlangFool

What reminders would you expect?


We do well enough. We own nice enough cars, dine out, take trips, afford a Gardner and house cleaner, save aggressively

What would you expect my kids to see? People with bmw’s and trips to aspen?

We’re more Honda and Lake Tahoe people no matter how rich

I admit I might be wildly underplaying it. But I just am not seeing the specific examples that would be an issue for my kids

rage_phish,

Then, don't worry about what I posted.

KlangFool

[LaborDoc]

If you can afford the extra on-going costs, accept the gift and enjoy your life. I doubt if your FIL is trying to attach strings to it to control your life. I gifted the down payments to each of my daughters to purchase their condos. There were no strings attached, and never will be. I would much rather see them use some of their future inheritance now, than wait to leave it all to them until after I am dead.

Did this last year. Accepted down payment from in-laws. Great relationship, no strings attached. I highly recommend it if it increases your daily happiness.

As said above, be aware of taxes and monthly costs.

And yes, he can just apply it to lifetime limit. He needs to fill out appropriate tax forms. Your mortgage person may need proof that your FIL is not providing this money via a loan from a bank.

[Bobby206]

...He is just well off and enjoys sharing that with his daughters and their families

Sometimes fathers are concerned/jealous about losing their position about being "first" with their daughters and will do anything to maintain their position.

and sometimes they are just generous. The glass is half full I would say!

[Katietsu]

I think the relationship advice with FIL is unnecessary and sounds unfounded.

I think the advice about making sure you can afford the ongoing expenses on the new home is important. I do also think you should decide if the new neighborhood is a good fit. Will the attitude towards material goods and spending that your kids may be exposed to be consistent with your values? Will your kids be able to participate in the activities of their peers? Will they feel bad or like they have to hide the truth about their birthday parties, clothing,vacations, etc? Will living in this neighborhood lead to the lifestyle inflation? Only the OP can make those decisions.

[SQRT]

This is a strong indication that he wants to retain control over your household and encourage dependency on him. This is a fatal strike at your future sense of independence and self-achievement.

"Free money" generally costs you the most. Money received as an inheritance comes without strings.

I dont see any such indication. I helped my daughter in this way and certainly don’t want to exercise any such control. Fatal strike? Hardly.

In some real estate markets, such as San Francisco, Toronto, Vancouver, it is virtually impossible for a young couple to get established in the market. It is very common, even the norm, for parents to help their children with down payments. Nothing to do with control or other weird family dynamics.

[SQRT]

...He is just well off and enjoys sharing that with his daughters and their families

Sometimes fathers are concerned/jealous about losing their position about being "first" with their daughters and will do anything to maintain their position.

I guess anything’s possible, but this is quite a “leap”.

[SQRT]

Just say no.

+1 Adults should support themselves.

Really? Would you? Sounds like sour grapes to me.

[rage_phish]

Thanks for the responses. Both the helpful and the unsolicited that made this thread more interesting

[boomer_techie]

We’re more Honda and Lake Tahoe people no matter how rich

Sounds like the OP might be in California. For those that don't know, there is a lot of economic diversity in California neighborhoods. In one neighborhood you might find: a tech executive, the cable guy, a doctor, a house full of hippies, the owners of a big car repair shop, a septic tank pumper, insurance broker, journeyman auto mechanic, elderly widow who's house is assessed at 1/20th the market price, newlyweds, retirees, grad students, ...

The OP will not stand out for having been gifted their down payment.

[rage_phish]

We are indeed in the Bay Area (east bay suburbs) and you are very accurately describing how I see the town and area as well

[e5116]

Yep seems like the OPs question has been answered already. Lots of cynicism in these responses though. Sheesh! First, sounds like OP is still decently well off so it's not like his kids are living with poverty wages in a rich district. I was middle class in a upper class high school and it wasn't a big deal. In fact, I'd say it helped me to push myself more. Although I wasn't a person to be jealous much so it also taught me something. And beyond that, studies have shown that those living with poverty wages - when they move to communities of wealthier citizens - have better life outcomes. So yeah I wouldn't worry about being the "poor" person in a rich neighborhood as long as you keep your kids grounded. It actually could be a positive. Feel fortunate about the gift and enjoy the house!

[oldfatguy]

Just say no.

+1 Adults should support themselves.

Really? Would you? Sounds like sour grapes to me.

Absolutely. I have turned down gifts from in-laws on more than one ocassion.

[smitcat]

Just say no.

+1 Adults should support themselves.

Really? Would you? Sounds like sour grapes to me.

Absolutely. I have turned down gifts from in-laws on more than one ocassion.

"Absolutely. I have turned down gifts from in-laws on more than one ocassion."
One of the best ways to pass wealth along in a family - unfortunate it is not useful for you.

[as9]

Been lurking for awhile, but decided to register to tell you to take it (as long as you can support on-going expenses) and more importantly to rage the five shows you've got coming your way this summer.

[rage_phish]

Just say no.

+1 Adults should support themselves.

Really? Would you? Sounds like sour grapes to me.

Absolutely. I have turned down gifts from in-laws on more than one ocassion.

What an odd stance

[niceguy7376]

My observations:
Current House down payment was partially (spouse half) paid by the FIL.
No idea of how long ago that was and how much in $ that was.

New home is getting a much bigger payment from FIL so that the mortgage payment remains the same. Now the OP needs to afford the new property taxes. What will OP do with the old house? Sell it before they buy the new one or after they buy new one?

Either way, will they repay the FIL for the original down payment?

I am more interested in the financial scenario of the OP (how their retirement plans are progressing etc) .
With the amounts that FIL has promised to his daughter, he definitely will have more than the estate limit.

[oldfatguy]

One of the best ways to pass wealth along in a family - unfortunate it is not useful for you.

I do not consider it unfortunate. I am not interested in passing along wealth.

[oldfatguy]

Just say no.

+1 Adults should support themselves.

Really? Would you? Sounds like sour grapes to me.

Absolutely. I have turned down gifts from in-laws on more than one ocassion.

What an odd stance

You think it is odd that capable adults should strive to be self-supporting?

[smitcat]

One of the best ways to pass wealth along in a family - unfortunate it is not useful for you.

I do not consider it unfortunate. I am not interested in passing along wealth.

Absolutely - if there is no intention to ever pass along wealth there is no problem.

[KlangFool]

We are indeed in the Bay Area (east bay suburbs) and you are very accurately describing how I see the town and area as well

rage_phish,

Given that it is a new house purchase, does that mean you do not get a discount on the property tax as per Prop 13? How much is the property tax?

KlangFool

[smitcat]

+1 Adults should support themselves.

Really? Would you? Sounds like sour grapes to me.

Absolutely. I have turned down gifts from in-laws on more than one ocassion.

What an odd stance

You think it is odd that capable adults should strive to be self-supporting?

Capable adults can easily be self supporting and still get gifts.

[EddyB]

My father in law has offered a very generous gift of $600k to allow us to buy a home in the school district we desire (he wants to see us enjoying some of our inheritance while he’s alive and this combined with equity from our current home will allow us to be able to afford a very similar monthly payment to what we currently have)

Is there anything to be aware of with this situation? Tax implications? Funding issues?

rage_phish,

Just say no. Do you enjoy living in a neighborhood that you get to feel very poor every day? Ditto for your spouse and your kids. Your neighbors are probably making multiple times your household income.

KlangFool

And yet:

Comparison Is the Thief of Joy!
- Theodore Roosevelt

Focus on your own journey. Ignore the noise of others as to what you should or should not do.

KlangFool