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May 18, 2009
Down payment and Mortgage
Question to those who are familiar and Adam Dahil.
I am about to close on a condo in NJ. My uncle gave me two check made out to my bank as a transfer to cover the down payment. The money wasn’t a loan or a gift (which he would have to pay the tax on) but simply my money I had once gave him for investment purposes and to hold in his account. Now the bank tells me they need him to sign a gift letter but they won’t report him to IRS, the letter is only going to Fannie Mae and last time I checked this is a federal bank. What should I do to avoid this issue? They said they won’t close it if I don’t have the proof of where the money came from.
Comments
You always have to prove where all the downpayment money comes from. When some of it comes from someone else it will be deemed a loan and added to your debts and may reduce the amount you can borrow. Its going to have to be labelled as a gift unless you can prove otherwise which sounds like it will be difficult.
Posted by: daveinbedstuy at May 18, 2009 10:46 AM
I think you should show the bank the original document that you and your uncle signed years ago when you gave him the money to invest for you. I'm sure you have that in a file somewhere. Look carefully you will find it.
Posted by: phripley at May 18, 2009 10:58 AM
I'm just trying to avoid him paying the tax which he really shouldn't pay.
Posted by: karo25 at May 18, 2009 10:59 AM
If you are both co-named on the investment account that should solve most of the problem.
Posted by: daveinbedstuy at May 18, 2009 11:21 AM
Do they report a gift letter to IRS?
Posted by: karo25 at May 18, 2009 12:21 PM
What if I told you, Yes? Go find your paperwork.
Posted by: No one at May 18, 2009 12:55 PM
If you told me yes than I'd go about it differently lol smartass
Posted by: karo25 at May 18, 2009 2:04 PM
They don't report the gift letter to the IRS. They just stick it in the file. Fannie doesnt report information to the IRS.
Either show that it was a legal repayment for an investment or sign the gift letter. Gift letter will be a easier condition to clear.
Welcome in NJ, where are you moving to? Downtown JC?
Posted by: Adam Dahill at May 18, 2009 3:47 PM
Ask them but I'm pretty certain they don't send a copy of the letter to the IRS.
Posted by: daveinbedstuy at May 18, 2009 3:48 PM
Thank you Adam, as always:)
We looked in Verona whcich I loved because of the park but the place was horrible for the price and finally found one in West Orange of the Conforti Avenue.
Are you familiar with the area?
Posted by: karo25 at May 18, 2009 3:55 PM
I had the same situation. Have him fill out the gift letter and give it to the bank. They do not report the letter to the IRS. It is not even considered a gift for IRS purposes (because he is repaying you). If the IRS ever audited you, it would probably be in the context of auditing your 2009 tax returns because they look funny, and then they might review your bank accounts and wonder how you got the money. That is the only way the IRS would find out about the money (aside from someone else writing in, etc). You would have to prove to the IRS that the money you got was not a gift but a repayment (probably could be done with a sworn letter from you and your Uncle). But in any event, you're allowed to have a certain amount every year as a gift tax free. I'm not sure how much the amount was, but you might be under this limit. It is somewhere between 10-18K, I just don't remember. The only tricky issue is should you have been paying income tax on your interest earned through your Uncle. I'm assuming he was paying tax on the money, so they might not care. You're taking a very small risk in the event the IRS audited you for 2009 taxes and then went through all your bank records, but you may not have any other option. Hope this helps.
Posted by: theklahy at May 18, 2009 3:58 PM
Thanks theklahy, yes, it does. I will give them the letter if that's the case. I don't care as long as the poor guy won't have any issues:)
Posted by: karo25 at May 18, 2009 4:06 PM
The IRS gift limit is $13,000, and if your uncle is married he and his spouse can each give you $13,000.
The standard gift letter actually has a line for "source of funds" which is where you can just say that this money is being given to you having been held on your behalf by your uncle. The point of the letter is for him to sign something that says there aren't strings attached to the money and that he has no expectation of repayment or services in return for the money.
This won't be an issue. Promise. If you get audited you can cross that bridge but you ought to be able to dredge up records that show that you gave him the money to hold, way back when. That's all assuming there aren't capital gains taxes to be paid, but if it was in his name he should have been addressing that all along.
Posted by: serpentor at May 19, 2009 10:57 AM
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