What can be an alternative to the gift tax regarding a real estate purchase?

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What can be an alternative to the gift tax regarding a real estate purchase?

I am about to purchase my 1st home. My father offered to put in for my 20% downpayment. I read that the gift tax allows a monthly gift of $13,000, above which is taxed at a rate of 35%. Is there any option to avoid this tax? Have him on the deed? Have him on the loan? Have him co-sign the loan? The tax is very substantial, and this is income he has previously been taxed on. Also, who is best to get this info from – a real estate lawyer, lender or realtor?

Asked on August 5, 2011 North Carolina

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

First, you should consult with your accountant and a real estate attorney about the best way to avoid the gift tax to your father on the real estate transaction in your question.

My experience which I have done in the past to address your situation is to have your father go on title to the property with you as a tenant in common where the percentages of each of your ownership interests in the home being purchased are spelled out in the deed to you. For example: you 75%, father 25 %.

Under federal tax laws, your father can gift you a percentage in the home equivalent to $13,000 per year tax free. He would then gift you each year a percentage of his initial ownership equal to $13,000 by way of a grant deed for a series of years where the amount of his ownership interests is decreased and yours is increased in the home until hos ownership interests ar zero. Each year a gift tax return will need to be sent to the IRS about this.

The above suggestion is based upon the assumption that your father wants to gift you the down payment for the home. If he expects repayment, he loans you the 20% for the down and you sign a promissory note for it. The note can be secured with your home. Under this scenario, your father does not go on title to the house to be purchased.

Good question.


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