Buying a Home with Gift Money
Along with the current tax credit in place for first time home buyers, many parents are gifting money to their children to help them purchase a new home. However, there are tax consequences for doing this, and here are a few pointers to help avoid paying Uncle Sam the next year.
- Give a cash gift A person is allowed to gift up to $13,000 per person in a given year without incurring gift tax. That means that in one year, a couple could give their son and daughter $13,000 each, for a total of $26,000, to go toward a down payment.
- Lend the money In order to avoid the government seeing the loan as a gift, you need to charge at least the minimum market interest rate. Consult your accountant on this.
- Set up a trust One way to go is to use a qualified personal residence trust, or QPRT. for a QPRT, parents put the home they want to give their children into a trust. At the end of the defined term, the home passes to the children with no taxes due. You’ll need an attorney to set this up, but it can be a great option.
