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Old 07-10-2010, 10:37 PM
 
Location: Texas
44,256 posts, read 64,135,030 times
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When you go to buy the house, the bank loaning you the rest of the money will demand to know where your down payment came from (I just went through this nonsense), so you'd better do it all legal-schmegal.
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Old 07-10-2010, 10:38 PM
 
Location: Long Island
9,923 posts, read 23,055,376 times
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Quote:
Originally Posted by psychofan View Post
Being extremely old-fashioned (and paranoid of banks and any investment vehicles), my parents have been squirreling away cash for the better part of 30+ years. Before you start harping on how foolish and naive they have been and how they've been losing value on that money, trust me, I have already been down that road with them before to no avail. Anyway, that's not what this post is about. The reason for this posting is that my wife and I are considering buying a house possibly in the next 10-12 months. As such, my parents have indicated that they would be interested in footing 20% of the purchase price (in additions to whatever sum we would put down - probably 10-15% on our part for a total of 30-35%) to avoid PMI, etc.

The central issue here is that the 20% from my parents would be least $100K (if not slightly more). The problem is that sum from them will be $100K+ in cash. Obviously, we're not going to be able to fund the home purchase with cash (it would need to be in the form of an electronic payment/check). Therefore, the question is, how do we put that $100K+ into our bank account without incurring suspicions of illegal activities or special notices from the IRS, fraud, etc. on both of us and our accounts (i.e. mine and my parents)? Should my parents just start putting in smaller cash deposits into my account now on a regular basis? If so, how much should these deposits be?

You're dealing with a number of issues here. I'll try to address some of them.
As to my qualifications, I'm not only a Realtor but also a CFP(R)...

The "gift" suggestion has been made, and it's a good one, up to a point. As far as the gift limit is concerned, what has been overlooked in previous posts is the fact that you and your wife can actually receive $13K each from each of your parents, i.e. both your mom and your dad can each give to you and your wife $13K = $52K gift tax free, right there.

You state that you plan on buying a house within the next 10-12 months; if they gift you $52K now, in 2010, and you don't close until 2011, they can again give you 4x the maximum "free" gift(s) early next year - case closed if you need only $104K. No need to be concerned with gift taxes.


I also agree with the suggestions made that any money gifted to you/your wife should be deposited in your parents' account(s) a.s.a.p. and maybe held there long enough so that the amount(s) show up in three statements ("seasoning"). Any monies given to you by them - because you will be applying for a mortgage - should be via check or electronic funds transfer (EFT), so there is a "paper" trail. Chances are when the time comes and you apply, the bank may ask you for proof of funds, i.e. they may even ask your parents for a copy of their bank account(s) to see that the money gifted to you and your wife truly came from them, as well as a gift letter (they don't want someone to lend you the money, because that would count as a liability on your balance sheet). The Patriot Act has added this extra layer of regulations to the process; it is what it is, and it's best to be prepared.

Of course your parents might want to be prepared for questions from the IRS because of the large deposit; they might want to consult with someone locally - I can't and won't give that kind of advice here.

Good luck in your search for a home!
You are fortunate that your parents are in a position to assist you
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Old 07-10-2010, 10:52 PM
 
680 posts, read 1,914,809 times
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Seriously...are there any CPA's on this thread?

Elke, being a CFP, are you not aware of IRS Pub 950?
http://www.irs.gov/pub/irs-pdf/p950.pdf

Please let the OP know that his parents can give him $100,000 tax free this year....
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Old 07-10-2010, 10:55 PM
 
Location: Long Island
9,923 posts, read 23,055,376 times
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Quote:
Originally Posted by volk2k View Post
Seriously...are there any CPA's on this thread?

Elke, being a CFP, are you now aware fo IRS Pub 950?

Please let the OP know that his parents can give him $100,000 tax free this year....
Why do it all this year if the OP doesn't need the full amount until next year? Just split the gift(s) between 2010 and 2011; that way the Unified Tax Credit won't be affected at all...
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Old 07-10-2010, 11:02 PM
 
Location: Long Island
9,923 posts, read 23,055,376 times
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Quote:
Originally Posted by volk2k View Post

Elke, being a CFP, are you not aware of IRS Pub 950?
http://www.irs.gov/pub/irs-pdf/p950.pdf
I am indeed, volk2k.
Please read page 6 of said publication... If the OP's parents split the gifts (4 x $13K) between 2010 and 2011, for a total of $104K, there is NO gift tax, EVER, because it does not exceed the allowable amount.
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Old 07-10-2010, 11:04 PM
 
680 posts, read 1,914,809 times
Reputation: 592
Sorry just deleted my post..... because I didn't realize the OP was planning to buy in the next 10-12 months...

If that is the case then yes, Elke, I would probably just spread it out.

However.... the point that I still want to clarify to the others on here is that you can indeed gift more that $13K per year tax free...

If the OP finds a house tomorrow, the OP's parents can gift the whole $100K this year.
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Old 07-10-2010, 11:10 PM
 
Location: Long Island
9,923 posts, read 23,055,376 times
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Quote:
Originally Posted by volk2k View Post
Sorry just deleted my post..... because I didn't realized the OP was planning to buy in the next 10-12 months...

If that is the case then yes, Elke, I would probably just spread it out.

However.... the point that I still want to clarify to the others on there is that you can indeed gift more that $13K per year tax free...

If the OP finds a house tomorrow, the OP's parents can gift the whole $100K this year.
They can indeed, but then a gift tax return must be filed and the "overage" of $48K will count towards the Unified Tax Credit--well, the amount will depend on if/when/how/for whom Form 706 is filed...
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Old 07-12-2010, 07:37 AM
 
9,803 posts, read 16,127,697 times
Reputation: 8266
Quote:
Originally Posted by volk2k View Post
Thought I would give a napkin math example for Marmac.

Let's take the OP's case.

OP's parents give him $100,000. I'm going to simplify this even further and say that just the OP's dad gives him $100,000.

That would mean that the OP's dad would owe tax on $87,000 ($100,000 minus the $13,000 annual exclusion)

The gift tax on $87,000 would be: $28,760.....

However, the OP's dad can elect to use his Lifetime/Unified Credit.... of which we are allowed tax credits of $345,800 (which equals out to that one time gift of about $1,000,000 that I mentioned in my earlier post)

Now the OP's dad only has a Lifetime/Unified Credit of $317,040 left ($345,800-$28,760)..... so he can continue gifting the OP $100K every year for the next 10 years if he would like to.

Because the OP's dad elected to use this credit, he owes NO tax on the $100K he has given to the OP.

Please keep in mind that this Lifetime/Unified Credit encompasses ALL of the gifts that the OP's dad may give out over his lifetime... not just to the OP.

So if he gives $100K to ten people this year, he can no longer gift out amounts over $13,000 per year to anyone for the rest of his life.... unless he is willing to pay taxes on them of course.

The IRS can't tell you how much you can or cannot give to anyone, but they'll try to "tax" you out of it

In an earlier post you stated------" I am not a lawyer or a CPA"

QUITE EVIDENT !

I am in the process of selling my farm to my son.
I am using lawyers and CPA's

Your post doesn't hold water ( according to them )
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Old 07-12-2010, 09:36 AM
 
680 posts, read 1,914,809 times
Reputation: 592
Quote:
Originally Posted by marmac View Post
In an earlier post you stated------" I am not a lawyer or a CPA"

QUITE EVIDENT !

I am in the process of selling my farm to my son.
I am using lawyers and CPA's

Your post doesn't hold water ( according to them )
You are SELLING your farm..... There is a difference between selling something and gifting something.

Even after reading the document written by the IRS and reading the input from a CFP you still don't get it.

Please hire a new CPA and lawyer because you are losing money. Or why don't you just show your Lawyer or CPA this post....

You can thank me later.
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Old 07-12-2010, 10:50 AM
 
Location: Long Island
9,923 posts, read 23,055,376 times
Reputation: 5897
Quote:
Originally Posted by volk2k View Post


Please keep in mind that this Lifetime/Unified Credit encompasses ALL of the gifts that the OP's dad may give out over his lifetime... not just to the OP.

I'd just like to clarify this, as the statement could be misunderstood.
The Unified Lifetime Tax Credit ONLY comes into play for the EXCESS of the current annual maximum amount, which is $13K. Anyone can give to as many persons $13K/per yr as (s)he desires, year after year; the gift tax clock only starts running if a gift exceeds the maximum amount per gift/per recipient.

Example:
I come into a lot of money and want to be generous to many people. I consider making a gift this year to 25 friends at $13K each. That's a total of $325K - no gift tax triggered.
I change my mind and make a gift of $25K to 13 friends instead = still $325K total - but gift tax triggered; 13 x $12K = $156K total excess will be counted toward the Unified Lifetime Tax Credit and a Gift Tax Return needs to be filed (though taxes aren't really due at this point, because the maximum amount hasn't been reached).

All clear?
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