Earlier this year, I purchased a house and, though I had the funds, my parent insisted to support financially. We have a very good relationship and they expect no payment or strings attached in return (truly). However, I want to treat it as a family loan so that I don’t have to pay taxes on that amount since it’s over the $15,000 tax free gift amount (I live in the US).
I’ve heard a way to document the family loan is via a promissory note. Is that the best way?
Are there recommendations for a good promissory note template?
What terms do I need to be aware of setting with the note and what kind of interest needs to be paid back with it?
How should this transaction get reported on my taxes? I live in the US.
You don’t have to pay taxes on the gift over 15k, you just have to report it. The IRS then keeps a tally of these reports in case you get above the lifetime threshold.
The lifetime limit is $11.7 million, if that concerns you…we should become friends LOL!
https://www.fidelity.com/viewpoints/wealth-management/insights/lifetime-gift-and-estate-tax-exclusions
~~Your underwriter and/or real estate agent will be able to provide a templated letter for you to use.~~
~~It will not be called a promissory note because that implies a loan.~~
The gift reporting to the IRS is completely separate. Parents fill out Form 709 and mail it to the IRS.
Gifter: they don’t pay any tax until they exceed $11.7M in their lifetime. They have to report gifts over $15k in a given tax year but it’s not taxed.
Receiver: never pays gift or income tax on gifts. Doesn’t matter how large the gift is.
https://turbotax.intuit.com/tax-tips/estates/the-gift-tax-made-simple/amp/L5tGWVC8N
If it’s a gift you don’t need to do anything. The giver has to report it as a gift so it counts towards their lifetime gift limit of over $11 million dollars.
https://blog.taxact.com/gift-tax-do-i-have-to-pay-gift-tax-when-someone-gives-me-money/
Beyond what everyone is saying about gifts, don’t report it as a loan because then your parents will be required to pay taxes on interest of the loan (even if you didn’t pay interest). To sum up — do NOT consider this a loan or your parents could be stuck with extra taxes.
[Family Loans ](https://www.google.com/amp/s/blog.taxact.com/family-loans-lend-my-kids-money/amp/)
Fun fact: it’s actually a legal issue to borrow money for a down payment and not disclose it, assuming that’s what you meant.
If they gift you the money for a down payment, no big deal. But the mortgage company considers all debts/loans that you have when deciding to grant you a mortgage. If they saw $15k show up in your bank account or asked you where you got the money for a down payment, it’s fine to say it’s a gift from your parents. It’s NOT fine to say it’s a gift, but it turns out it’s actually a loan. That’s fraud.
Thanks for the quick guidance all!
An interesting discussion is worth comment. I believe that you ought
to publish more on this subject matter, it may not
be a taboo subject but generally people do not talk about such
topics. To the next! Kind regards!!
Hello there I am so excited I found your site, I really found you by mistake, while I was searching on Yahoo for
something else, Anyhow I am here now and would just like
to say thanks a lot for a incredible post and a all round entertaining blog (I also love the theme/design), I don’t have time to
go through it all at the minute but I have book-marked it and also added in your
RSS feeds, so when I have time I will be back to read
much more, Please do keep up the fantastic jo.
Saved as a favorite, I really like your web
site!
Thanks for expressing your ideas. One thing is that scholars have a choice between federal government student loan as well as a private education loan where it can be easier to select student loan online debt consolidation than over the federal student loan.
Thanks , I’ve just been looking for information about this subject for a long time and yours is the greatest I have came upon till now. But, what in regards to the bottom line? Are you sure concerning the source?
I ‘d mention that most of us visitors are endowed to exist in a fabulous place with very many wonderful individuals with very helpful things.
Have you ever considered about adding a little bit more than just your articles?
I mean, what you say is valuable and all. However imagine if you added some great pictures or
video clips to give your posts more, “pop”! Your content is excellent
but with images and videos, this blog could definitely be
one of the very best in its field. Fantastic blog!
Hi there, I discovered your web site by means of Google while looking for a similar subject, your web site got here up, it looks great. I have bookmarked it in my google bookmarks.
This design is incredible! You most certainly know how to keep a reader amused. Between your wit and your videos, I was almost moved to start my own blog (well, almost…HaHa!) Great job. I really enjoyed what you had to say, and more than that, how you presented it. Too cool!
What i don’t realize is actually how you are now not actually much more smartly-liked than you may be right now. You’re very intelligent. You understand therefore significantly on the subject of this matter, made me for my part believe it from so many numerous angles. Its like men and women don’t seem to be interested unless it is one thing to do with Woman gaga! Your own stuffs nice. At all times care for it up!
I do not even know the way I stopped up here, but I believed this put up used to be great. I do not realize who you’re but certainly you’re going to a well-known blogger if you aren’t already 😉 Cheers!
One other important area is that if you are a senior, travel insurance intended for pensioners is something you should make sure you really look at. The elderly you are, greater at risk you might be for allowing something terrible happen to you while in most foreign countries. If you are never covered by quite a few comprehensive insurance policy, you could have some serious difficulties. Thanks for discussing your good tips on this website.
I really appreciate this post. I have been looking all over for this! Thank goodness I found it on Bing. You have made my day! Thx again
You helped me a lot with this post. I love the subject and I hope you continue to write excellent articles like this.
You’ve been great to me. Thank you!