Summary: Gift Tax Limits And The Purchase Of A Home
If you are a parent and want to assist you child in the purchase of a home, you may want to give your kid a gift. But if that gift consists in the entire value of the home, you may have gift tax limits and federal gift tax consequences to deal with.
While you should still be able to give the gift and will have gift tax consequences, you child will still be able to purchase a home with your gift.
Gift Tax Limits And The Purchase Of A Home
Q: I am in the process of purchasing a town house and paying cash. I am using funds from a certificate of deposit (CD) that is payable on death (POD) to my daughter. She is currently renting an apartment and I feel it would be better for her to own rather than rent. The home will be in her name. Are there tax implications in this transaction for me or for my daughter?
A: You can give anyone a gift of up to $13,000 per year without triggering a taxable event. You can also give away up to $1 million in your lifetime (or after your death) without triggering gift taxes (although you may have to file some tax forms with the IRS). You don’t mention the cost of the town house, but if it is under $13,000 or $26,000 (if you’re married), you wouldn’t have to worry about gift taxes or reporting issues at all. But even if it is less than $1 million, you should be fine from a gift tax standpoint.
There are other ways to give her the property, including putting the townhouse in a trust and naming your daughter the beneficiary. She would receive the property after your death. You could use a different type of trust that gives her the property in $13,000 chunks over a period of years.
An estate attorney can help you think through any other issues of note and help you structure the transaction in a way that makes sense.
But here’s something else to think about. If you break the CD to take out the funds, you may pay a penalty for the early withdrawal. Make sure you understand the terms of the CD before you cash it in.
Finally, as you think about how to help your daughter, you could consider whether she would be a first time home buyer and if she is whether she would qualify for the $8,000 first time home buyer tax credit. This tax credit is due to expire at the end of November 2009 but there are some that believe that some form or another of the tax credit will be extended.
The tax credit consideration along with other tax issues should be enough for you to want to talk to an estate planning attorney as soon as possible.
Here are some other articles that may be of interest to you having to do with gift taxes:
Buy Home Or Receive As Gift: Tax Implications
Down Payment For Buying A Home As A Gift
Gift Taxes and Gift Tax Limits Explained: Lifetime and Annual
Property As Gift: How To Avoid IRS Gift Tax
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