Ways to finance with help from my parents

Hi, I know that I’ll ultimately need to hash things out with a lawyer, but I wanted to see if anyone else had expertise on this topic:  My parents are willing to help my family purchase a two-family house with a sizeable chunk towards the downpayment.  The intention is that theu use that apartment for as long as they want, not living there for now but maybe down the line, and someday it is ours to rent out, live in, etc.  My family will pay the full mortgage, taxes, and do all maintenance etc. We’ve been considering the best ways for them to contribute this money without incurring major gift tax.  We know that they can make gifts to family members up to a certain amount every year (now that it’s december, that gives us two years in a row quickly) – but are their other angles?  Is there a way to give more to our children, or any, and if so can we then spend our children’s money on the house? Or, could they cover the costs of a reno and we pay for the house itself (downpayment and mortgage) without their money? Or a combination – eg they gift us as much as they can and beyond that foot the bill for the reno up to their intended amount? Many thanks for your thoughts.

elm_bk

in Mortgage 13 years and 5 months ago

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BHS | 13 years and 5 months ago

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Talk to a mortgage broker, a mortgage will be the biggest issue re the gift. If you don’t need the money in terms of down payment and mortgage payments and the renovation is optional (the property is clearly habitable) then have the family contribute to the reno costs, pay your mortgage for a certain portion of time post close, or prepay part of your mortgage with family money if prepayment is alowed which will reduce your principle though not your monthly mortgage costs assuming you get a standard mortgage. Of course, no idea on the differing tax implications of these options.

Bklnite | 13 years and 5 months ago

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Comments get cut off…. … with 13k annual exclusion if it’s 2 parents giving money to 2 donees (you and your wife), making gifts in 2 years (2011 & 2012),
13k*2*2*2 = 104k before triggering the gift tax. Confirm with an accountant or tax pro, or read up on irs.gov … http://www.irs.gov/businesses/small/article/0,,id=108139,00.html

Bklnite | 13 years and 5 months ago

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Rather than the accountant, talk to a mortgage broker. They can guide you on drafting a gift letter from parents and tell you what loan size you’d qualify for, based on your credit, income, and assets (including the gift).

elm_bk | 13 years and 5 months ago

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thanks, that’s helpful.  next stop, accountant.

stevecym | 13 years and 5 months ago

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Forget the gift tax; the banks won’t loan to you if you take too much from your folks.  There are ways around this including the sale of assets that may be theirs but you can claim as yours, like things with no names on them.  Gold or metals you can say you bought years ago if they have that to give you.   Talk to an acct, I know people who have transferred money this way for the very same thing and it worked. Steve

thatwasmyidea | 13 years and 5 months ago

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you should really talk this out with a lawyer and or a smart accountant.

elm_bk | 13 years and 5 months ago

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Thanks for your suggestion.  I had thought of this but they don’t want any legal responsibility for the house, and initial thought was that if we did this they might be on the hook legally.  True?

jockdeboeraia | 13 years and 5 months ago

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I would think you would form an LLC and just have it all spelled out.