When Grandma – or any other family member – wants to provide the
funds for the down payment on your new Pittsburg, CA home, you’re a
fortunate individual. However, you and Grandma have rules to follow.
These rules come from two sources: Your mortgage lender and the
Internal Revenue Service.
First, your lender: The rules will change depending upon the kind of
loan you qualify for and the amount of the down payment. Some loan
programs require that you furnish some of the funds from your own
pocket. Other programs, generally with a 20% down payment, will allow
all of the funds to be gifted.
Note that for mortgage loan purposes, the gift must come from a family
member or from someone to whom you are engaged to be married.
Note also that the gift must be well-documented and accompanied by a
gift letter. The gift letter must state that the giver does not expect
repayment – ever. The giver may also be required to show that he or
she “owns” the money given. It can’t come from borrowed funds.
Then there’s the IRS. Under the Gift Tax rules it is the giver, not
the receiver, who could be liable for taxation. That seems a little
odd, but there it is.
The IRS, by the way, doesn’t care who gives you money. It’s only
the lender who insists that it must come from a family member.
Any individual may give any other individual up to $15,000 per year
without having to report the gift or pay taxes. That means that if
you’re married, Grandma could give you and your spouse each $15,000.
So could Grandpa, Mom, Dad, or any of your siblings.
But let’s say there’s only Grandma with the funds to help, and you
and your spouse need more than $30,000.
It turns out that she can give you more without having to pay tax on
the gift. The catch is that she’ll have to file form 790 to disclose
the gift. From there, the gift will count toward a lifetime cap of
$11.4 million that can be given tax-free.
If Grandma wants to give you the funds for the down payment, first get
all the rules from your lender. Then go along with her to speak with
her tax advisor – so you both understand how to follow the rules
that will eliminate any tax liability.
Then remember to give thanks for your good fortune in having someone
who loves you enough to make such a gift.
In 1946 the real estate firm of Western Homes Realty Co., was established and this began a long line of Croskey Real Estate history.
With the vision of growing a real estate and Insurance business in the San Francisco Bay Area