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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11851
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Can my parents loan me money (approximately up to $75,000),

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Can my parents loan me money (approximately up to $75,000), via a direct transfer from bank account to bank account, for the down payment of my home mortgage without tax implications? If so, what do we need to do, if anything, in addition to the transfer? If not, what are our alternatives?

Lane :

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)

Lane :

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)

Lane :

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)

Lane :

Make sense? ... Questions?

Customer:

And if we go the gift route, what would be the result of them filing this year?

Lane :

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)

Lane :

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

Lane :

sorry for the typo "from THIS..."

Customer:

Yea, I meant in respect to my parents. What kind of taxes should they expect just for transferring that amount this year?

Lane :

The way this works is, that if they give over 14000 to any one person in a year thay file an informational return

Lane :

Again NO tax until they've given $5,250,000 during their lifetime

Lane :

BUT

Lane :

The gift tax form, IRS form 709, is filed fore the purpose of tracking those gifts

Customer:

Ok, thanks for clarifying!

Lane :

NO problem

Lane :

one last thing?

Customer:

I believe that you've covered all of my questions.

Customer:

Thanks so much! I have literally been losing sleep over this.

Lane :

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

Lane :

NO problem Good luck with everything!

Customer:

Ok, good to know.

Lane :

THat covers everything

Lane :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Customer:

Sure thing!

Lane and 2 other Tax Specialists are ready to help you

Thanks for the rating Nathaniel.


If you'd like to work with ME again just say "For Lane only," at the beginning of your next question.

Thanks again,
Lane

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