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We loaned our Daughter $40,000 for a down payment on a house…

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We loaned our Daughter...

We loaned our Daughter $40,000 for a down payment on a house she is purchasing. She has excellent credit and qualified for a home 300,000 more than the one she is purchasing but she just did not have the down payment. Now we have received a form from the lender asking us to sign that we gifted her the money. We are concerned that she will have to pay taxes on the amount of the gift---even though it is a private loan. What is the best course of action at this time? Thank you.

Accountant's Assistant: The Accountant will know how to help. Is there anything else important you think the Accountant should know?

We wrote her 4 checks at $10,000 each and all signed my my husband. The account, however, is in both of our names. I don't know if that info matters.

Submitted: 9 months ago.Category: Finance
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7/28/2017
Financial Professional: emc011075, Tax adviser replied 9 months ago
emc011075
emc011075, Tax adviser
Category: Finance
Satisfied Customers: 3,595
Experience: IRS licensed Enrolled Agent and tax instructor
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Hi. My name is ***** ***** I will be happy to help you.

Gift and loan are two different things. A loan has to be repaid, usually with an interest, a gift is not. First talk to the lender if you can make a loan, not a gift. If he does not agree you will have to sign the documents. Receiver of a gift is not required to report the gift of pay any taxes. However, the donor(s) is required to file a gift tax return if the amount is over 14K. Each of you can gift your daughter 14K without having to file a gift tax return. If your daughter has a spouse you can each gift additional 14K to her spouse, which would eliminate the gift tax return requirement (14x4=56).

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Customer reply replied 9 months ago
I already knew everything you told me. My question is why does the lender care if we loaned or gifted the money to our Daughter? It does not involve them----or does it? Is there some law that she cannot use the money for a down payment if it is a loan and not a gift? What if I opened an account in both my and my Daughter's names and put money in it. Could she withdraw the money that way? I don't want to fill out a form saying it is a gift when it is not.
Financial Professional: emc011075, Tax adviser replied 9 months ago

The lender does not want that your daughter has additional financial obligation because it lowers her disposable income and increases risk of default. The lender wants to make sure that she can pay of the loan on monthly basis. A 40K loan is like having 40K car loan or 40K student loan. You can open a joint account, deposit the funds and let her use it for the down payment, but if she is still expected to pay it back it is still a loan. If she does not disclose it as a loan and the financial institution finds out, they can cancel the loan and it will be much more difficult for her to work with them.

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Customer reply replied 9 months ago
I am not happy with this process or your answer. It never answered my question. Please refund my money and cancel this immediately---very poor service!
Financial Professional: Lane, JD, CFP, MBA, CRPS replied 9 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 14,020
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. My name's Lane. I am a different expert. I have a different answer.

...

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice on three continents since 1986.

...

Bear with me a moment and I’ll provide my initial response, and then we can go from there if you have further questions on this

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Customer reply replied 9 months ago
I am cancelling as service is very poor.
Financial Professional: Lane, JD, CFP, MBA, CRPS replied 9 months ago

The lender is trying to document that this is a gift of equity, rather than a loan.

...

And this IS the right way to document this. If you loaned your daughter the funds, it means that there is debt owed to the lender AND debt owed to you.

...

There is NO gift tax implication here (gift taxes are paid by the giver AND are only due after the giver has given away more than that lifetime exemption of $5,490,000 - twice that for a married couple).

...

However, if the downpayment was borrowed and the rest of the funds are borrowed, they may not underwrite the loan

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Financial Professional: Lane, JD, CFP, MBA, CRPS replied 9 months ago

This is VERY much their business... Mortgage underwriters have the right to know the source of funds ... and if your daughter had to BORROW money for the downpayment and will owe them money as well, then they, again, may very well not underwrite the loan.

...

So sorry to be the messenger here, but this is what it is

...

I home you'll rate me on thoroughness and accuracy, rather than any good news/bad news content

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