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Question

I'm planning on paying down my mortgage and have two sources of funds available to me. One is my 401k (I left the job and am over 55, so there is no 10% penalty, but would have 20% withheld for tax) and the other is a reverse mortgage on my Fathers house. My question is what would be the best, least expensive option. It will cost $10,000 in closing cost to get the reverse mortgage compared to $24,000. in taxes to draw on my 401k. Can I (my Father) get around the federal gift tax by putting the money in an joint (he and I) checking account and then I would write a check to pay down my mortgage.

Submitted: 47 days and 3 hours ago.
Category: Tax
Value: $15
Status: CLOSED
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State/Country relating to question: Washington

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Accepted Answer

Hello elky,

If your father obtains a reverse mortgage and then plans to give you the money to use to pay down your mortgage, there would likely be no gift taxes due.

First, if and when gift tax is ever due, it is paid by the donor and not by the recipient of the gift. However, under current regulations, each taxpayer is allowed to give gifts in their lifetime of up to $1 million before any gift tax becomes due. This is part of what is called the Uniform Tax Credit Act.

In addition to the $1 million lifetime exemption, each individual is allowed to give annual gifts of up to $13,000 to any number of individuals, and those gifts do not even apply towards the lifetime exemption, nor do they need to be reported. Gifts which exceed the annual exclusion of $13,000 must be reported by the donor by filing Form 709 with the IRS to report the value of the gift. However, no tax is actually due unless that donor has already reached his $1 million lifetime limit. The amount reported then reduces that donor's remaining lifetime balance that he may give in non-taxable gifts.

Putting the money in a joint account and letting you write a check from that account would not change the fact that this was a gift. But as long as your father has not given more than $1 million in gifts in his lifetime, then it is simply a matter of reporting the gift, but no taxes would be due.

If this was helpful please press the Accept button. Positive feedback is also greatly appreciated.

Thank you elky

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Expert: Merlo
Pos. Feedback: 99.8 %
Accepts: 
Answered: 10/6/2009

Accountant

25+ years tax consulting. Specializing in returns for US citizens living abroad

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