How does received a $50k gift affect taxes?

Question

Hello Everyone,

If my mother is to gift me $50k and I set up a payment plan to repay her, how does that work with taxes?  I had never heard of being taxed on a gift (silly me).  I was originally going to use the gift as a down payment but I learned that gifts can't be used to purchase property, until it becomes "seasoned".  I DO NOT want pay taxes on any kind of money that my mom gives.

What I want to do is use my mutual funds to purchase a property and replenish the mutual fund with the 50k to make interest, while paying back my mom with no interest.

Does anyone have experience with gift taxing?  The last thing I ever want to do is pay the government twice.

Thank you.

Joe Splitrock · Answer

Account Closed it is a loan and you would need to report it to IRS and so would your mother as interest income. If you try to do something like this under the table, your mother could get hit with a gift tax bill from the IRS. If you don't pay interest, the IRS may impute interest for your mother to pay. The banks may see the loan different than cash. Technically, it is $50K in additional outstanding debt.

As far as your comment about the $50K being $36K over the limit, you already stated you are repaying the money. That means ALL the money is a loan. You really shouldn't be claiming $14K as a gift, then repaying it. I guess you could say it is a gift back to her. I would just caution you to be careful where the IRS is involved. They can be pretty nasty.

Brandon Hall · Answer

Account Closed thanks for attending!

You would need to file a Form 1099 and issue that to your mother to report the interest paid (assuming the $50k loan is not collateralized. Y the asset). You would also deduct the interest in Sch A if a primary residence or Sch E if a rental.

The concern I’d have is that your lender may not want to see this $50k classified as a loan. It will increase your DTI, so be cognizant of that.

Brandon Hall · Answer

Account Closed gifts in excess of $14k annually are not taxed as long as the lifetime gift exclusion ($5,490,000 for 2017) is still available for the taxpayer. The excess over $14k simply reduces the lifetime exclusion amount.

BUT, and this is a big but, what you are describing is a loan, not a gift. A gift is one in which you receive value for no expectation of reciprocating value. How would you explain the payback if questioned by an IRS auditor?

Richard Olshove · Answer

Account Closed

If you are going to repay the money then why wouldnt you treat this as a personal loan at a very very low interest rate, 1%?  This is a legit transaction and could be included into a RE transaction as funding of the down.  Another option is to have her be a 2nd loan on the property you are planning to buy thus making it part of the transaction.  This is what my parents did to help me buy my first property and it worked very well.  In a few years I refinanced and paid it off.

Thanks

Richard

Account Closed · Answer

@Brandon Hall thanks for the reply.  I listened to your webinar today and that sparked this question, when you brought up gift tax.

I would set up the 50k loan to be paid back over 30 months - bi monthly @ $833 directly into  my mom's Wealthfront account.

Do I need to report anything to the government if I am paying I am paying her back?

Account Closed · Answer

So to to take this right, since the the $50k is $36k over the annual limit, tax would need to be paid on $36k?

If you are gifted and wait several months and give the gift back does that null it or are you then looking at two gifting taxes?

@Richard Olshove - how can this be treated as a personal loan?  Since I am already doing that, this makes the most sense.

Matt K. · Answer

Can't you increase that too by having ea parent gift at Max and then hypothetically if he was filling jointly same gift to the other person to get to 56k?

How does received a $50k gift affect taxes?

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