Sure the method of transfer, itself, is not an issue ... this can be treated as a loan (in which case they should report the interest on their tax return AND the best practice would be to draft a loan agreement) ... OR it can be treated as a gift (in which case they would file a gift tax return - JUST to report and track - there is a lifetime gift exclusion from gift and estate tax of $5,250,000)
BUT if you intend to pay this back, the best method is to draft a basic loan agreement, pay a real interest rate that would be a normal market rate (and MOST IMPORTANT, your parents should report any interest received on their tax return (HOWEVER, you could also capitalize the interest where it is paid back at the end of a term)
The initial transfer? Loaned money to be paid back... not taxable to you and only the interest (their earnings) on the loan would be taxable to them, WHEN RECEIVED)
Make sense? ... Questions?
And if we go the gift route, what would be the result of them filing this year?
Nothing at all, in terms of income tax ... gifts ( and estate transfers, the FINAL gift, if you will) are taxed under a different system ... the gift and estate tax system .. gifts and estate transfers are TRANSFER taxes .. and are paid by the giver (or the estate itself, in the case of death)
Everyone has a lifetime exclusion from hits... for those passing in 2013 it's $5,250,000 and is slated to go up every year
sorry for the typo "from THIS..."
Yea, I meant in respect to my parents. What kind of taxes should they expect just for transferring that amount this year?
The way this works is, that if they give over 14000 to any one person in a year thay file an informational return
Again NO tax until they've given $5,250,000 during their lifetime
The gift tax form, IRS form 709, is filed fore the purpose of tracking those gifts
Ok, thanks for clarifying!
one last thing?
I believe that you've covered all of my questions.
Thanks so much! I have literally been losing sleep over this.
If they do LOAN the money and don't charge any interest at all IRS may call this a below market rate loan and chargs then income tax on what's called imputed interest
NO problem Good luck with everything!
Ok, good to know.
THat covers everything
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